Government net zero targets and tenant demands lower running costs are forcing more landlords to invest in new-build homes.
Investors with old and draughty rental properties face huge bills to bring them up to scratch under government rules. To avoid expensive upgrades, landlords are increasingly buying up new-build homes, which are typically much more energy efficient.
12.5% of new-builds were bought by investors in 2022 – the highest level for the past 5 years, according to Hamptons estate agents. This was a sixfold increase from 2021, when just 2% of new homes were bought by investors.
Government proposals require newly rented properties to have an Energy Performance Certificate rating of C or above by 2025, while existing tenancies would have to be upgraded by 2028.
David Fell, of Hamptons, said: “Given that 80pc to 90pc of newbuild homes come with an A or B Energy Performance Certificate (EPC) rating, there’s no work required to meet the proposed requirement for a rating of C or above.
“Higher energy costs also mean tenants actively seeking out more energy efficient homes, something which hadn’t really happened before the last year or two.”
Mr Fell added that the first 10 or so years of a new home’s life are “fairly hands off” for a landlord, which means they can more easily be managed from farther away”.
The hands-off approach also makes new build attractive to overseas investors.
Mr Fell added that investors are choosing to invest in these new-builds in the North of the UK, due to higher yields. Yields on new builds in the North are 6.4pc on average, compared with 5.2pc on older homes in the South.
An investment of £100,000 for a new-build property in the North would generate a return – the difference between rent and mortgage repayments – of £50,573 on average over five years, Hamptons said.