An interesting article landed in my inbox this morning (written by www.mortgagesforbusiness.co.uk) that I thought would be great to adapt and share concerning the pending changes to EPC ratings in the private rental sector:
More than two years after the changes to Energy Performance Certificate (EPC) requirements for buy to let properties were announced (December 2020), the Bill still hasn’t passed law. We are often asked by landlords what the latest updates are, how they should be preparing etc.
Chancellor, Jeremy Hunt announced that energy consumption from buildings and industry must reduce to 15% by 2030 as part of the Governments plan for the United Kingdom to reach Carbon Net 0 by 2050. According to OSB group, Currently, residential property accounts for around 20% of the UK’s carbon emissions
The proposal by the Government:
The private rental sector is at the centre of the Government’s plan to reduce the carbon emissions. The proposal is the private rental sector (PRS) properties (with new tenancy agreements) must have a minimum EPC C rating from April 2025 and all existing tenancies from April 2028.
Uncertainty is the main issue amongst landlords that we have been speaking to. There are no clear signals from the Government as to when the bill is likely to be passed in law and landlords who have got properties below a C rating are concerned about unrealistic timelines to make improvements to their properties. According to research carried out by OSB group, 60% of landlords who are aware of the changes are adopting the wait and see approach. With the proposed deadline being just over two years away, more clarity and certainty is needed.
Who Should Contribute to EPC Improvements?
A survey completed by Shawbrook’s survey reveals that 85% of Tenants would be less likely to look at a rental property with an EPC rating of D or below. The survey also reveals that 72% of 18–34-year-olds tenants, looking for rented accommodation would check the EPC rating before signing tenancy contracts. With the cost of living and energy prices soaring, saving money has moved higher up the agenda of tenants. (Interestingly, the survey revealed that just 52% of those over 55 would do the same.)
Funding the improvements to boost the EPC rating to a C is a worry for landlords. Shawbrook’s survey further reveals that 49% of landlords believe tenants should hold equal responsibility for making energy-efficient improvements, and 33% that the duty lies with both but more so the landlord. Some measures which landlords believe tenants can contribute to include low-energy lightbulbs (63%), water-saving taps (43%), smart meters (43%) and draught proofing (29%).
The Benefits of an energy-efficient rental property to a property investor/landlord
At first glance, it appears that most benefits are for tenants (modern fittings and lower household bills), However, there are several benefits for the landlord as a property investor.
First and foremost, many buy to let mortgage lenders now offer cheaper mortgage interest rates for properties with EPC ratings from A – C. Sometimes, the better the rating, the larger the discount. (Check your re-mortgage due date and, time and finance depending, complete green upgrades before then to ensure you have these options available).
Always speak to an experienced broker to ensure you get the most cost-efficient deal.
While there is not a set-in-stone deadline for the EPC legislation changes, they will come at some point in the next few years. Making green improvements can improve the longevity of your buy to let investment and could avoid potential mortgaging and legal issues once it is a legal requirement. Tenants are concerned about property energy efficiency, (whether for moral or cost-saving reasons). Consequently, a good EPC rating will attract more tenants, reducing void periods and potentially increasing rent rates. So, there’s a financial benefit to you as well as your tenants (or whoever is responsible for the bills).
There is some evidence that making green improvements increases property value. Rightmove’s Green Homes Report ‘found that homes going from an F rating to a C rating added 16% to the value of the home.’ Sustainability Director at Legal & General Surveying Services, Trudy Woolf, believes that EPC ratings may have more sway on property values as the cost-of-living crisis and moral commitment to greener living deepens.
EPC Improvement Challenges for Property Investors
The Shawbrook survey suggests that landlords cite affordability as the main barrier to making energy efficiency improvements to their properties. For landlords with just one rental property, this increases to 51%
Under the existing regulations, landlords must spend up to £3,500 to bring properties up to an EPC E before claiming an exemption. This is in place partly because some older properties simply cannot attain higher EPC ratings, and because most landlords do not have limitless amounts of money to fix these issues.
The reality is this short-sightedness from the Government could increase the number of landlords selling their property. As Tenant demand increases, the UK housing crisis will only worsen with fewer properties available, rents will continue to rise further.
How Can Landlords Finance Energy-Efficient Upgrades?
The Government has launched the ECO+ scheme, designed for middle-income property owners with properties in council tax bands A to D (this accounts for approximately 70,000 homes). The scheme grants up to £1,500 to contribute 75% of energy-efficient upgrade costs per household, covering loft insulation, cavity wall insulation and smart heating controls.
Most importantly, this is available for private rental sector properties. Currently, the scheme will only run for three years from April 2023, with a one-billion-pound budget allocated. To find out more, follow this link: Government joins with households to help millions reduce their energy bills - GOV.UK (www.gov.uk)
Thanks for reading
Until next time