* Seasonally adjusted figure (note that monthly % changes are revised when seasonal adjustment factors are re-estimated)

Robert Gardner, Nationwide’s chief economist, said: “UK house prices fell by 0.2% month on month in August, after taking account of seasonal effects, but the annual rate of house price growth continued to edge higher. Average prices were up 2.4% year on year, a slight pickup from the 2.1% recorded in July and the fastest pace since December 2022 (2.8%). However, prices are still around 3% below the all-time highs recorded in the summer of 2022.

“While house price growth and activity remain subdued by historic standards, they nevertheless present a picture of resilience in the context of the higher interest rate environment and where house prices remain high relative to average earnings (which makes raising a deposit more challenging).

“Providing the economy continues to recover steadily, as we expect, housing market activity is likely to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth.”

Nationwide says that decarbonising and adapting the UK’s housing stock remains critical if the UK is to meet its 2050 emissions targets, especially given that emissions from residential buildings account for 15% of the country’s greenhouse gas emissions. With this in mind, we’ve used our house price data to examine the extent to which owner occupiers pay a premium or discount for a home due to its energy performance rating.

To do this, Nationwide included energy efficiency ratings from energy performance certificates (EPCs) alongside the usual property characteristics we use in our index. This allows us to control for other factors that can influence the value of a house or flat, such as the number of bedrooms, location and whether it is newly built.

Gardner continued: “Our analysis suggests that a more energy efficient property, rated A or B, attracts a modest premium of 2.8% compared to a similar property rated ‘D’ (the most commonly occurring rating). There is little difference for properties rated C or E compared with D, as shown in the chart below.

“There is a noticeable discount for properties rated F or G – the lowest energy efficiency ratings. Indeed, an F or G rated home is valued 4.2% lower than a similar D rated property.

“Our research suggests while energy efficiency impacts remain relatively modest, they have increased relative to pre-pandemic levels, with A/B properties now attracting a larger premium compared with 2019 and F/G properties seeing a larger discount, as shown in the chart below.

“The value that people attach to energy efficiency is likely to continue to evolve, especially if the government takes measures to incentivise greater energy efficiency to help ensure the UK meets its climate change obligations.

“Over the past ten years, energy efficiency has improved significantly, thanks in part to the higher energy rating of newly built properties. However, the rate of improvement has slowed markedly in recent years. The latest data (2022) shows 48% of the housing stock is now rated C or higher, up from 18% in 2012.

“As noted above, newly built properties typically have a much higher rating (97% are rated C or above), although the stock increases very slowly (typically by c.1% per annum). However, it is important to note that while these homes are energy efficient once built, a significant proportion of new homes’ carbon footprint (between 25% and 50%) relates to its construction.”

Government analysis based on the latest English Housing Survey suggests that if all applicable energy improvement measures were applied to all dwellings rated below C, 96% of those would shift into bands A to C, while 4% of dwellings could not be improved beyond a D rating.

The average cost to improve dwellings to band C was c.£7,400, with an overall estimated total cost for upgrading the entire housing stock of between £91bn and £94bn. As expected, dwellings with a rating E to G have a higher average cost to improve than D rated homes (£13,500 vs £6,200).

“The government’s current aspiration is to upgrade as many homes as possible to band C by 2035. However, the current pace of energy efficiency improvements is relatively slow, given the scale of the challenge,” Gardner added. “For example, the rate of insulation installs is a fraction of the 2012 peak (see chart below), the last year of the Carbon Emissions Reduction Target and the Community Energy Savings Programme. This suggests a need for further incentives to help decarbonise homes.”