House prices have risen consistently for over 30 years.
Apart from a correction in 2008 during the financial crisis, when they dipped by around 25 per cent, your home has been your castle – and in many cases, your best performing investment.
However, recent reports show the housing market’s growth has started to decelerate. In fact, according to Nationwide, April was the second month in a row in which house prices actually declined. Coupled with this, the number of mortgages approved is also continuing to fall, suggesting that the appetite to buy is wavering for the first time in a long while.
The new climate is starting to change how we view our homes, no doubt affecting how long we stay in them (the cost of moving being so high), and how we invest in them.
“A” for effort
With slower capital growth on residential property, fuelled largely by higher stamp duty and Brexit uncertainty, homeowners are more frequently employing an “improve before you move” strategy, undertaking home improvements specifically to increase the value of their homes. New research by YouGov suggests that 63 per cent of homeowners are now looking to do so, rather than move.
Extensions and cosmetic changes represent one popular avenue for home improvement – at least for those with the space and budget to do so.
But an investment in increasing the energy efficiency of a property, particularly in more congested urban areas, represents an attractive route – not only to improve living standards by making one’s home warmer and cosier, but also realising significant savings. The Committee on Climate Change has found that energy-efficient measures delivered a reduction of more than £20 per month – or around £290 per year – to an average household energy bill last year.
The savings provided by improvements in a property’s Energy Performance Certificate (EPC) rating translate into added value to the property.
A range of studies across Europe have demonstrated a premium in sales value for more energy-efficient homes. The UK’s former Department of Energy and Climate Change estimated in 2013 that energy-saving improvements could increase the value of one’s property by an average of 14 per cent – and up to 38 per cent in some parts of England.
Driving this price increase is the priority that potential homebuyers are increasingly placing on efficient central heating, double glazing, insulated walls, and a high EPC rating, according to IdealHomes.com.
And yet, presently, fewer than one in three homeowners use connected technology that could not only improve economic efficiency and save money, but add value to their property.
In addition, homeowners who let their properties are faced with a legal obligation, as well as this financial incentive. By law, landlords will have to improve their properties’ energy-efficiency ratings to E and above, in line with the new minimum energy standards, which comes into place on 1 April 2018.
The UK housing stock is one of the oldest and most energy-inefficient in Europe – ranking 14 out of 16 – with only the tiny fraction of residential property built after 2006 having been subject to the tightening of the energy efficiency requirements laid out in the 1965 Building Regulations Act.
Accordingly, failure to comply could render unlettable a large proportion of the estimated 35 per cent of rental properties in the UK managed by private landlords.
Cost of improvement
Nevertheless, while some homeowners are willing to pay to go “smart”, funding these improvements can be costly, and consumers are wary of taking on expensive credit at a time of economic uncertainty, or taking on a bigger mortgage. Some 47 per cent of homeowners from the YouGov survey cited a lack of available funds as the main impediment to carrying out improvements.
Fortunately, the range of options available to homeowners for mitigating these financial overheads has substantially increased, led by the private sector, as well as the government. Consumers can access innovative financing options, such as the recently-reintroduced Green Deal, which allows homeowners to repay a loan as they save on energy bills.
New smart technology products for the home, like Hive, continue to come to market, and retailers such as John Lewis – which has saw sales of smart home products increase by 81 per cent between 2015 and 2016 – are increasingly committed to making these available at competitive prices.
These innovative solutions in the market allow consumers to engage properly with their energy usage, improve their quality of living, and add value to their home.
Kilian Pender is chief executive of the Green Deal Finance Company.