SPECIAL REPORT: Easy as EPC? Green carrot offered to builders
By Simon Hacker | 9th February 2024
Amid this week's political turmoil on Labour's decision to halve its £28bn green investment pledge, the property arm of a Gloucester investment group which specialises in green growth has launched a loan incentive for borrowers in the construction sector.
The message from Blackfinch Property, put simply, is this: the higher the energy performance certificate (EPC) rating on what you build or improve, the lower the cost of your borrowing.
David Higson, head of Blackfinch Property (BP), which is part of the Gloucester Business Park-based Blackfinch Group, said BP's preferential rates were designed to incentivise property developers to go the extra mile in the specification of home orders on their books.
He said: "We want to put our funding to good use, helping to revive local areas and regional economies and encouraging the development of sustainable property."
Environmental, social and governance (ESG) principles must be core to the lending process and integral to how we work, he explained.
Mr Higson added: "We also look to work with like-minded, forward-thinking developers willing to improve the UK's current building stock, given the impact that existing buildings will have on the UK's decarbonising requirements. We want to work with developers who believe in using sustainable materials and are interested in investing in the future, rather than simply replicating the past."
Under the terms of the scheme, investors commiting to delivering improvements to their underlying properties that realise an improved EPC rating will also benefit from incremental rate reductions of 0.25% per band.
He added: "As well as this, for new construction we can offer discounted rates if A-rated EPCs are achieved. In other words, the better the EPC rating, the greater the financial incentive borrowers have for choosing to partner with us."
As an example, for a residential property with a C or D EPC rating where Blackfinch plans to lend at 6% interest, the interest rate would be reduced by 0.25% for each improved rating. Consequently, getting to a B rating would reduce the interest rate to 5.75%, while getting buildings up to an A rating would mean an improved interest rate of 5.5%.
While recognising EPC ratings are a relatively simple measure of energy efficiency, and that sustainability encompasses much more besides, Mr Higson said there is a broad understanding of the independently-produced system, given its presence across the property market.
Further wins from the scheme lie in the area of value creation, he said: "Giving developers incentives to achieve higher energy-efficiency standards feeds into our risk/reward considerations when underwriting loans. In other words, better EPC ratings have an increasingly positive impact on the value of a property all-round, with developers benefitting from lower lending rates - as well as coping with possible future costs of complying with energy efficiency standards - and also as property occupiers benefitting by seeing their energy bills fall."
With 2050's net zero carbon goal always approaching, pressure on developers is expected to grow in 2024 for a raising their game on sustainability, but according to forecasting from Construction Management magazine, this year is likely to still see a volatile market for the sector - with factors that can easily distract from green goals.
The magazine reported: "Insolvency rates remain high, and 2024's general election poses an additional element of uncertainty - with the two major political parties diverging on attitudes to sustainability, planning, infrastructure and housebuilding. The skills shortage also remains a danger area. Even with inflation falling across the economy, labour supply constrictions may keep construction costs high."
● Domestic EPCs were introduced for living spaces initially in 2007, while the Energy Performance of Buildings (England and Wales) Regulations 2012 codified the 2008 requirement for non-dwellings to have an EPC on construction, sale or rent.
Copyright 2024 Moose Partnership Ltd. All rights reserved. Reproduction of any content is strictly forbidden without prior permission.