Regulations requiring all rental properties to have an EPC rating of C or above for new tenancies come into force in 2025, before extending to include all tenancies by 2028. This has significant financial ramifications for buy-to-let landlords, who are now required to carry out renovations to ensure their properties meet the legal requirements by the set deadline or face the prospect of not being able to take on new tenants.
The new rules, which are part of the government’s long-term plans to reach its “net zero” carbon emissions target by 2050, are likely to have a significant impact on both existing and future landlords as well as the UK’s housing supply, with some landlords selling or avoiding purchasing properties with low EPC ratings or buying only those rated C and above in order to avoid carrying out improvement works.
Tenants are also likely to feel the brunt of the changes as some landlords look to finance the cost of EPC improvements by increasing rents while the supply of rental options could dwindle as older properties often used in flat conversions fall out of favour due to the need to improve them.
Despite these impending changes, research conducted by Shawbrook Bank has found that one in seven (15%) private landlords admit they are unaware of the proposed EPC changes and 2025 deadline. Another poll, conducted by The Mortgage Works, showed that 35% of landlords said they did not believe they would be able to bring their properties up to the required EPC standard by the given deadline.
This is concerning. Landlords cannot afford to ignore the drive to improve the quality and energy efficiency of current housing stock, especially as more than a third (36%) of current properties in the private rented sector were built before 1940, making them more likely to have a poor EPC rating. In fact, the research showed that 23% of landlords own properties rated D or below for energy efficiency, which would make them unrentable post 2028 if works are not carried out.
Writing property off is not an option when demand for housing stock is already in short supply. According to the Ministry of Housing, Communities & Local Government, 58% of all existing domestic properties were assessed D or worse between January and March 2021. This equates to 14.3m out of 24.7m properties in England alone, which gives some indication of the scale of the issue.
For those landlords concerned about spending all their annual rental income and more on home improvements, for those coming to the end of their mortgage term, consolidating their mortgage debt may help to raise the capital needed to finance any renovation works.
It may also help to prevent them from being left with property they cannot rent, sell or improve should their lender pull back from lending on properties with a poor EPC rating closer to the 2025 deadline. In addition, it may also help to cover the rising cost of labour and materials as well as any future Bank of England base rate rises. By seeking advice and using a broker to work out what the changes mean, landlords can be assured they find a practical solution to accessing the finance they need to carry out the required work and ensure both they and the BTL market continue to thrive.