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A balanced view of Green Deal for Landlords

There has been a lot of negative publicity about the Green Deal and even suggestions that Landlords should not touch it with a barge pole. Like most things in life however it has its good points and its bad points and for that reason it is not as simple as deciding Green Deal itself is good or bad.

If you think about what Green Deal is for, the reason for much of the negative publicity becomes clear. Green Deal is a loan aimed at helping people who have energy inefficient properties and cannot afford to pay for the measures that will stop them wasting energy. For those people who do not have access to better options, they can upgrade the property on a self-financing basis.

The repayment for the loan is more than covered by the savings on the fuel bills so you have a more efficient property with no increase in outgoings. That means improved energy efficiency and increased comfort levels are affordable for people who otherwise couldn’t get them.

By definition then, if your property is already energy efficient you don’t need Green Deal. If you have the spare cash to pay for the measures outright or can borrow the money cheaper then you don’t need Green Deal. So if you are one of these people and you don’t like the look of Green Deal then that is fine because it is not meant for you.

So who is Green Deal for?

As far as most Landlords are concerned it is for the tenant who is living in a property with high fuel bills where a few cost effective improvements would make a big difference to the fuel bill. Those tenants are spending money on wasted energy and the Landlord may not want to spend out on improvements because it will cost them but save the tenant money. With Green Deal the cost of the improvement is paid for by the tenant, not the Landlord so the person who gets the cash flow benefit pays the bill. The Landlord gets an improved (and therefore higher value) property with the cost paid by the tenant.

If your tenant comes to you and says “To make my life more comfortable, I want to insulate your property, fit double glazing and upgrade the boiler and I don’t mind paying for it all” would you really turn it down? It will never happen though; or at least it wouldn’t until Green Deal. Now that is exactly what Green Deal can make happen.

Does this mean the tenant is being stitched up? No it doesn’t. The tenant is replacing money spent on wasted energy with slightly less money spent the things that reduced their bills. In the process they will also have achieved a more comfortable and possibly healthier living environment.

Sure, it is not as simple as that; these things never are. If the tenant moves out as soon as the measures are done somebody else has to take over the repayments which could be seen as a barrier to re-letting; so only go the Green Deal route with tenants you believe are there for the long term.

Is the Green Deal repayment really that much of a barrier? Let’s say the repayments are £20 a month, but the property now has good central heating and double glazing. Surely you can offer it for at least £20 a month more and give the tenant a credit for £20 off the higher rent to cover the repayment so they don’t feel like they are paying for it? Of course you may be able to put the rent up £30 and give £20 credit if the improvements made that much difference to the desirability.

Green Deal is also the doorway to free money. There are some properties and some tenants that will be eligible for Energy Company Obligation (ECO) funding. That means all, or at least a large part of the cost of improvements could be paid for by ECO. There may not need to be a Green Deal loan at all, or it could be for a small fraction of the work that is done to upgrade the property. If you have a solid wall property with inadequate heating and damp issues you are struggling to resolve that is a massive potential liability. You could easily be looking at upwards of £20,000 just to get it to decent homes standards and it will take a long time to make that back on the rent. Potentially you could be getting that work done for perhaps a £5,000 Green Deal loan and the rest paid for outright by ECO. What is even better is the tenant has to pay back the loan, not you. If I was in that position I would think long and hard before I pushed it away with a barge pole.

Green Deal is not for right everyone and if it is not for you then don’t do it. But for some people it is an excellent opportunity and you should establish whether you are one of those people before you reject it. It is not enough to rely on a global perception of the scheme or a dislike of a particular element. It is necessary look at the specific property and circumstances to establish whether the situation ‘fits’ Green Deal.

If you are bored with this summary and have had enough then thank you for reading this far and goodbye. If I still have some of your interest the following section deals directly with some of the specific criticisms that have been levelled at Green Deal.

Warning to Landlords over Green Deal

Recent announcements for the government suggest that they would like to get tougher on Landlords who own properties that are rented out which fall into the lowest brackets for energy efficiency. As part of the Green Deal  repayments on the government loan for the work are made via the electricity bill. So in effect tenants are paying for the work.

This has to be good news for Landlords who will get their properties upgraded to the required standards with the improvements paid for by the tenants.

According to the English Housing Survey, published earlier this month, 11.4pc of homes in the private rented sector were rated F or G in 2011. By 2018 it will be illegal to rent a property with an EPC rating of E or below.

So it must be good news for Landlords that there are non-compliant properties can be made compliant with the cost being met by the tenant?

Long Finance Deals

In most cases the loan is stretched over many years, usually between 10 and 25. The loan stays with the property, even when it is sold. The government has said that it expects interest rates for the loan to be between 7.5% APR and 9.5% APR.

Which is higher than someone with equity can get a secured loan for but is a fairly good rate for the types of people the Green Deal is intended to support.

Loans stretched over a very long term will end up being very costly

..but not as costly as not doing the improvement and continuing to pay the higher energy bill.

Selling a home with a Green Deal incentive attached can be off-putting to buyers, who are not keen on getting saddled with previous debts

..but in return they will get a property with lower fuel bills and there is nothing to stop the remaining balance of the loan being settled early if that is a major issue.

If the tenant falls into arrears with the energy bill debt, they will be chased in the usual fashion via the energy provider they are protected far more than with any other type of loan and the liability does not transfer to the Landlord.

Approved Installers

Assuming that the Landlord would have to use approved installers, this would mean that the green additions will probably cost more than if the Landlord were to make the improvements themselves.

But as the tenant will be paying for them they don’t actually cost the Landlord at all.

Approved partners are rarely competitive in pricing because they don’t need to be

..(although the Green Deal market will be a competitive market and the Green Deal advice report is intended to be used to obtain several competitive quotes so this argument does not really stack up).

Take up on the Green Deal has been much lower than expected. One factor in that may be because it takes far longer to get to a break-even return on any energy saving investment due to the initial high purchase expenditure.

In truth however it is probably because it has only just been launched, most people don’t know about it yet and the initial assessments and quotations are still in progress.

What About Our Traditional Housing?

It should be remembered that much of our property in the UK is traditional houses, not newer builds. This is particularly true in rural areas where many properties are physically incapable of qualifying for higher bands, simply because of their construction methods.

Very few properties are physically incapable of achieving the higher bands. It is just harder and often more expensive to achieve it with traditional houses. The Green Deal process however can open the door to additional support with the cost for these properties by accessing ECO funding.

In fact, some newer green incentives could damage listed property.

Which is why there are protections in the system to ensure that only measures which are appropriate to the building are actually carried out.

Making property legally un-rentable, when people still want to live in them, does not help solve the housing crisis.

Which is true but irrelevant as that is not something that Green Deal does. The bigger problem is properties becoming legally or practically uninhabitable if they are not improved appropriately.

Another part of the Deal is that the government hope to force Landlords to comply with the clause “Landlords will not be able to refuse tenants’ reasonable requests for energy efficiency measures.” This of course begs the questions, what is deemed to be reasonable and how or where is that arguable in law, should it come to that? Surely if a Landlord thinks the tenant is being unreasonable they would just evict the tenant.

So the Green Deal is great for Landlords because it is easy to define a reasonable request as a request for something that can be financed using Green Deal i.e. a request for something the tenant is prepared to pay for themselves.

A simple fact is that most homes can vastly improve their energy rating with better insulation, which is both simple and cheap to fit. So why bother with the Green Deal at all?

The other simple fact is that the things which are both simple and cheap to fit are not being done and Green Deal has been introduced simply to make that happen. If they had happened without Green Deal it wouldn’t exist now.

Summary comment

Green Deal is not for everybody but it is suitable for some. The big benefit for Landlords is that the tenants will pay to upgrade your properties. The reason tenants will want to do it is they they will be better off financially if they do and they will also be living in a more comfortable property. Remember tenants are not in effect spending their money to pay for Green Deal; they are using the money that was already going to the energy company to pay for wasted energy.

Completely ignoring Green Deal rather than considering whether it is an appropriate solution for specific properties will potentially deprive Landlords of a significant opportunity.It may not be for you, but don’t be tricked by negative publicity into dismissing it without checking because for some Landlords and some properties it is a very useful facility.

Ian Sturt, 22 March 2013

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