The UK Government has identified that homes across the UK contribute about 20% of all carbon emissions from the country. For the UK to reach its ambitious carbon neutrality goals, the UK Government has decided to focus on improving the energy efficiency of homes, especially buy to let properties and new builds. As part of this, in several recent consultation documents, it has been suggested that the minimum energy efficiency standard (MEES) of residential buy-to-lets should be raised.
The current minimum energy efficiency standard for buy to let properties is a band E. This MEES came into full effect in 2020. However, in a consultation document from late 2020, it was suggested that the minimum EPC rating be raised to a band C for all new tenancies by 2025, and all existing tenancies by 2028.
Furthermore, in a consultation document from June 2021, it was determined that this bar should be raised again. The document strongly suggests raising the minimum EPC rating for buy to let properties to a B by 2030.
Under current UK guidelines, landlords need to update the EPC at least once every 10 years. Not having an EPC rating that meets the minimum energy efficiency requirements could result in large fines for landlords.
So, what are the 5 things that landlords need to know:
- Currently 60% of UK properties have an EPC rating of D or lower
In the private rental sector, 36% of properties were built before 1940. It is unlikely that these older properties will have an EPC rating of C or above without having had improvements made.
What’s more, 13% of properties in the private rental sector are Victorian. It may be very difficult to achieve an EPC rating of C or above for these properties.
Overall, in a recent survey, 23% of landlords stated that their properties had a current EPC rating of D or lower.
- What are the cost implications?
Clearly, if the current proposals come into force, landlords will face significant costs to bring their properties up to an EPC rating of C or above. Landlords estimate that it will cost an average of £5,900 per property to achieve a rating of C or above.
However, the average cost to date has been an average of £8,900 per property. With the current economic situation these costs are likely to increase.
There is a current cost cap of £3,500 to bring properties to an EPC rating of E or above. The new proposed cap is £10,000 per property.
The current fine for non-compliance is £5,000 but the proposal is that this increased to £30,000.
- Won’t this create inconvenience?
With any structural works it is likely that tenants will have to vacate the property whilst they are carried out.
In a recent survey, 42% of landlords said that tenants would need to vacate the property whilst improvements were made. Furthermore, 38% of landlords said that tenants would need to vacate the property for up to 4 weeks.
Labour shortages and material costs will further increase the inconvenience.
- Possible exemptions
As previously mentioned, it may not be possible for some properties to achieve an EPC rating of C or above, either because of cost, property type and location.
There are properties that are likely to be considered exempt under the new proposals, such as listed properties.
The cap that we mentioned earlier will also be a factor. The current cap of £3,500 could be increased to £10,000. This means that if, after spending up to the cap, the property still doesn’t achieve an EPC rating of C, it will effectively become exempt.
Landlords will need to keep meticulous records of their spending on EPC improvement works for their properties to be considered for exemption.
- The benefits of acting early
Mortgage lenders are already offering preferential deals and rates to landlords whose properties have an EPC rating of C or above and the number of these deals is only set to increase. Some lenders are also offering to lend additional funds for works that will improve the EPC rating.
Tenants are increasingly looking for more energy efficient homes as energy costs soar, and properties with a higher EPC rating could attract premium rents.
Looking into the medium to long term, properties with a higher EPC rating are likely to have more re-sale potential.
Conclusion
As you can see, the proposed changes to EPC requirements for rented properties is likely to have big repercussions for landlords, in terms of cost and inconvenience.
Hopefully this guide has provided you with useful information to help you to prepare for the upcoming changes. We know that the changes are only proposals at this stage, but hopefully we’ve highlighted the fact that there are benefits to improving a property’s energy efficiency, irrespective of any legal requirements to do so.
As mortgage brokers, we understand the demands and needs of the landlord sector, and our clients range from single property owners to those with large portfolios. If you’d like to have a totally free and no-obligation chat about your own plans and get some advice on how you could prepare for the proposed changes, we’d love to hear from you.
