New builds prove more cost-effective than fixer-uppers for landlords

New builds prove more cost-effective than fixer-uppers for landlords

Research by the Home Builders Federation reveals that renovating older properties to modern standards can cost over £170,000, making new build homes a more economical choice for landlords and investors.

The Home Builders Federation (HBF) has highlighted a significant disparity between the perceived and actual costs of renovating older properties compared with purchasing new build homes. According to the federation’s recent research, buyers often underestimate the financial and practical demands of bringing a ‘fixer-upper’ up to the standards of modern new builds, which typically feature superior energy efficiency, comfort, and technology.

HBF’s findings show that while more than half of surveyed adults expect to spend no more than £50,000 on renovations, the reality is starkly different. The estimated cost to upgrade a three-bedroom semi-detached property to match the energy performance and features of a new build is around £170,000. This figure is far beyond the expectations of the majority, with only 1% of respondents anticipating renovation costs exceeding £150,000.

Energy efficiency and running costs favour new builds

One of the key advantages of new build properties is their energy efficiency. Nearly all new homes achieve an A or B Energy Performance Certificate (EPC) rating, whereas fewer than 5% of older homes reach these standards. The HBF, in collaboration with Octopus Energy, estimates that this difference translates into average annual energy savings of approximately £420 for new build households compared to those living in EPC D-rated older properties. The savings rise to around £650 when compared with properties rated EPC F or G, which are more typical among renovation projects.

This energy efficiency gap has important implications for landlords, particularly as energy costs remain a significant concern for tenants and owners alike. Lower running costs can enhance a property’s rental appeal and reduce void periods, while also aligning with increasing regulatory pressure on landlords to improve the energy performance of their rental stock.

Affordability pressures influence purchase decisions

The research also sheds light on the impact of mortgage affordability on buyers’ choices. A notable 42% of respondents admitted that borrowing limits might force them to consider properties requiring substantial renovation. This figure is even higher among younger buyers aged 25 to 34, with 54% acknowledging affordability constraints. This demographic pressure underscores the government’s recent announcement of a support scheme aimed at first-time buyers, reflecting the ongoing challenges in accessing suitable housing within budget constraints.

Implications for landlords and letting agents

For landlords and letting agents, the HBF’s report offers a clear message: while renovation projects can appear attractive due to lower upfront purchase prices, the long-term costs and effort involved often outweigh the initial savings. New build properties come with integrated modern features such as energy-efficient heating systems, contemporary layouts, and advanced technology, which might otherwise require significant investment and time to install in older homes.

Landlords managing portfolios that include older properties should carefully consider the potential costs of upgrading these homes to meet tenant expectations and regulatory standards. The ongoing maintenance and higher energy bills associated with less efficient properties could affect profitability and tenant retention. Conversely, investing in new builds or recently constructed homes may offer more predictable costs and compliance with evolving energy efficiency regulations.

What remains uncertain for the rental sector

Despite the clarity on cost differences, several uncertainties remain. The precise costs of renovation can vary widely depending on the property’s condition, location, and the scope of works required. Additionally, future regulatory changes, particularly relating to minimum energy efficiency standards for rental properties, may increase the urgency and scale of necessary improvements for older homes.

There is also the question of supply. New build homes are not always available in the quantities or locations preferred by investors and tenants, which may limit options. Furthermore, the impact of government support schemes for first-time buyers on the rental market remains to be seen, particularly whether increased owner-occupation will affect rental demand and pricing.

Considerations for landlords now

Landlords should review their property portfolios with a focus on energy efficiency and long-term running costs. Assessing the potential investment needed to upgrade older properties to modern standards is crucial in budgeting and setting realistic rental yields. It is advisable to stay informed about upcoming regulatory requirements, including any changes to EPC rating obligations and the Renters’ Rights Act, which may affect tenancy management and property standards.

Letting agents and landlords should also communicate clearly with prospective tenants about the condition and features of properties, managing expectations around energy costs and comfort. Where renovation projects are part of a portfolio strategy, detailed cost analysis and risk assessment are essential to avoid unexpected financial burdens.

Keeping your rental properties compliant

Membership of The Landlord Association (TLA) offers landlords and letting agents access to tailored compliance resources and practical information to manage property standards effectively. TLA’s new property management and compliance platform, ORBIT, currently in BETA testing, is designed to help organise portfolios, manage rental documents, and record key compliance actions such as repairs and safety checks. Using ORBIT can assist landlords in maintaining up-to-date records and preparing for evolving regulatory demands, including energy efficiency and tenancy law changes.

Exploring TLA membership and the ORBIT platform can provide landlords with structured support to navigate the complexities of property management, ensuring that their rental homes meet legal standards while optimising operational efficiency.

Looking ahead, landlords will need to balance the financial realities of upgrading older properties against the benefits of new builds, while remaining vigilant about regulatory developments that shape the private rented sector.

Sources: Landlord Today