The Scottish Government is proposing a new Heat in Buildings Bill (the "Bill"). The Scottish Government launched a consultation on the Bill in November 2023 (the "Consultation") which closed on 8 March 2024. The details of the Consultation can be accessed here. The Bill which will introduce a Heat in Buildings Standard prohibiting the use of polluting heating from 2045. This means that Direct Emission Heating Systems ("DEHS") will no longer be able to be used as the main heating system in buildings nor as a source of heat or hot water in domestic and non-domestic premises (e.g. gas, oil, liquefied petroleum gas (LPG) boilers or burners and bioenergy systems).
This change to alternatives to DEHS has been accelerated in respect of new build homes. Changes to building regulations are due to come into force with the result being that all new homes and buildings constructed under a building warrant applied for on or after 1 April 2024 can no longer use DEHS and will be required to use alternatives such as heat pumps and heat networks.
One of the main benefits for buyers of a new build home is having a house that meets current building regulations and has the benefit of the latest technology meaning that a new build home is already far more energy efficient than older properties; resulting in a home that is cheaper to run and producing substantial savings in energy costs compared to older properties. It is always a good selling point that buyers can save money, but energy efficiency is particularly attractive given the well-publicised high costs of energy in the UK. The new requirement for a new build home to be heated using a non-DEHS could potentially result in further savings for an owner of a new build compared to traditional direct emission systems, depending on the energy tariff a buyer opts for, making a new build even more attractive in that regard as well as being better for the environment.
Under the Bill, the sale of a property is likely to be a trigger for implementation of works needed to install a non-DEHS system with purchasers likely to have a period of between 2 – 5 years to install a non-DEHS system following their purchase. It is expected that all properties will be compliant by 2033 and that, if not, this will be reflected in the sale price. Additionally, under the Bill, for residential properties, there will be a requirement that owner occupied homes meet a minimum energy efficiency standard before the end of 2033 and private rented properties meet this before the end of 2028. The standard to be reached is not set out in the Consultation but, rather, it lists a number of measures which if carried out would mean that the property would be considered to have reached a good level of energy efficiency.
A potential impact of the Bill, therefore, is that when an owner comes to sell their property there may be a need for negotiations between parties for updating or altering the property if it does not meet the new energy efficiency standards and/or requires upgrading to a non-DEHS system notwithstanding the intended onus being on the buyer. That could result in delays to sales or sales not going through at all if substantial works to a property are required. Some properties may not even be marketable if the level of works required are substantial.
New builds have the benefit of already complying with the likely energy efficiency standards that would be imposed if the Bill comes into Force. This has been illustrated by the Homeowners' Alliance which has provided figures suggesting that up to 80% of new builds fall into the A or B EPC rating compared to 2.2% of existing properties. In addition, no new builds will have a DEHS system from 1 April 2024 meaning it unlikely that a new heating system will be required in future in order to comply with the new standards. That makes a new building more marketable not just in terms of the initial sale, but also onward future sales and remortages given that little to no work should be required to improve the energy efficiency of the property when either trying to sell the property or when remortgaging.
The Scottish Government is considering what options might be available to it to ensure compliance with the Bill including exploring whether it could be a condition of lending and/or insurance that properties comply with the relevant requirements. New builds are unlikely to encounter issues with insurance and mortgages in that regard and the high levels of energy efficiency in a new build. An owner/buyer of a new build might also unlock preferential mortgage rates and products (such as green mortgages) when taking out a mortgage against one.
New build homes will help to address the well documented housing shortages in Scotland as well as contributing towards Scotland's drive for net zero. As they already meet the criteria being proposed under the Bill, they allow buyers and homeowners of new builds to make substantial savings on both mortgages and energy for buyers with little to no works being required in terms of energy efficiency making them more marketable for future sales and ultimately highly attractive for prospective buyers.
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