Last year, several major central banks were still insisting that inflation was only temporary — the result turned out to be the exact opposite. Inflation across Europe and the US stayed high, with central banks’ target levels still a long way off, and with the cost of everyday goods and living expenses rising sharply, every dollar spent or invested deserves closer attention to cost-effectiveness — buying property is no exception.
UK Inflation Runs High, and Household Energy Bills Have Been Startling
UK inflation has been among the highest of any Western economy: headline inflation rose 9.9% year-on-year in August, and core inflation also topped six percent, driven in large part by a sharp rise in energy prices. According to the UK’s energy regulator, average household energy spending rose 12% and then 54% year-on-year over the past two years respectively. It’s little wonder that friends living in the UK have resorted to “rationing power” to cut electricity costs — limiting the household’s internet use, turning off lights, and cutting back on unnecessary appliances whenever possible.
Last month, then-Prime Minister Liz Truss announced that, from that month, the household energy bill cap would be frozen at £2,500 a year until October 2024. Even so, two things are worth noting. First, that frozen cap is still 27% higher than the average level seen between April and September of that year, and more than double the average household’s yearly energy spending compared with the same April–September period the year before. In other words, unless energy prices fall, the new policy only caps the bill — it won’t necessarily lower what households actually pay. Second, the new Chancellor, Jeremy Hunt, has since announced a set of emergency budget cuts, including bringing forward the review of the two-year bill cap to the following April, adding further uncertainty about what happens next.
The UK’s Energy Performance Certificate System
Of course, individual buyers can’t do much about the underlying drivers of energy costs, but in the UK, buyers can choose properties with lower emissions and higher energy efficiency to get better value for money — and new-build homes fit that description well.
The UK introduced its Energy Performance Certificate (EPC) system back in 2007. Every home is issued an EPC as an indicator of its energy efficiency. The certificate carries the property’s energy-efficiency rating: simply put, the more energy-efficient, the lower the running costs. Under this system, EPC ratings run from A, the highest or most efficient, down to G, the lowest. 95% of new-build developments achieve a rating of A to C, whereas only 46% of already-built or so-called older homes achieve a rating in the top three bands.
UK New Builds Use 63% Less Energy
New-build properties place much greater emphasis on environmental performance, emissions reduction, and natural light, which makes a real difference to energy costs. Sharing a calculation from a colleague in CBRE’s research team: comparing annual spending on lighting, heating, and hot water between new-build and older properties, the former averages £5 per square meter, versus £10.1 for the latter. Overall energy consumption in new-build homes is 63% lower than in older homes, and carbon emissions are 55% lower.
Applying the same comparison to EPC ratings makes the cost gap between high- and low-rated properties even clearer. Take a property rated Band D: its average energy bill rose from £824 last March to about £1,805 this October. By contrast, a property rated Band B has an average energy bill of £797 — a saving of 56% on electricity and energy costs compared with a Band D-rated property.
Regulators Will Require Rental Properties to Meet a Minimum Energy Efficiency Standard
Beyond its effect on household bills, EPC rating also matters for anyone planning to invest in UK property or buy to let. The UK government has confirmed a single compliance date of 1 October 2030 for all private rented properties in England and Wales to meet a minimum EPC Band C rating (or equivalent), replacing the earlier proposed 2025/2035 phased timeline, with a £10,000 cost cap. Consider that retrofitting a property to meet this standard has been estimated at between £3,653 and £12,540 — a cost that doesn’t look particularly worthwhile. Purely from an energy-spending and regulatory-exposure standpoint, this columnist’s view is that buying a new-build property in the UK offers the strongest cost-effectiveness.
For questions on a specific property’s energy rating or upgrade costs, ask Zagdim.
Victor Li, columnist, CBRE Overseas Property Weekly
Senior Director, International Residential, CBRE Hong Kong
Have a question about this guide? Leave a comment below, or ask Zagdim directly.
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