Successful property investment is all about making the right choices at the outset, and many landlords are now factoring in EPC ratings to future-proof their investments.
As the government continues to raise the bar on standards in the buy-to-let sector in the UK, so property investors are keeping up with the new requirements being thrown their way – and even embracing them.
Energy efficiency is no longer just a buzz word, and environmental impact is now a core consideration in many aspects of life. As such, the government brought in the 2018 minimum energy efficiency standards (MEES) for rental properties, meaning energy performance certificate (EPC) ratings on rental homes must now be an ‘E’ or higher.
This is forecast to be increased to a minimum EPC rating of C on newly rented properties from either 2025 or 2026, meaning landlords with rental homes that don’t reach these standards will have some decisions to make.
Newer homes, higher EPC ratings
New research has come to light showing just how these energy efficiency requirements are affecting the private rented sector. Hamptons has discovered that property investment trends are already leaning towards more energy-efficient buildings.
According to the agency, the start of 2022 has already seen around 50% of investors buying properties rated A-C in their energy performance certificates. This is the highest figure ever recorded, and 11% higher than was seen in 2021. In 2020, just 33% of landlords bought top EPC-rated homes.
New-build properties tend to have the highest energy-efficiency ratings, and it seems there’s been an increase in property investors buying brand-new homes. Others are choosing to buy properties that have been brought up to a higher standard through renovations, says Hamptons.
Benefits for landlords and tenants
One upside to this, aside from the environmental benefits, is the money saved by tenants on their bills. According to the research, if all homes in the PRS with EPC ratings of G-D became at least C-rated, tenants in England would save a cumulative £844m in energy bills per year.
Aside from the appeal of living in a modern, state-of-the-art home, these energy savings will be a massive draw for tenants. This is particularly prevalent as the current cost of living continues to rise.
Aneisha Beveridge, head of research at Hamptons, said: “By removing the least energy efficient rental homes from the market, government policy has already picked the lowest hanging fruit.
“But extending this plan to upgrade homes with a D or E rating up to C will impact a far larger number of households, while generating smaller savings for tenants.”
“The policy will mean that the average tenant will eventually pay lower energy bills than the average homeowner, although it’s likely to remove some rental homes from the market, putting further pressure on stock levels.”
Invest in a new-build for the future
A recent analysis of all EPC ratings in England and Wales by the Department for Levelling Up, Housing & Communities, demonstrates a distinct polarisation in the housing market.
Between October and December 2021, 84% of new-build properties were given an EPC rating of an A or a B. These are the top classifications available, meaning that they are of the highest standards in terms of energy efficiency. For prospective buyers and tenants, this is a huge selling point for not only keeping energy bills down, but for protecting the environment.
By contrast, 81% of existing properties – older homes – received a rating of C or D, while only 4% achieved an A or B rating. What’s more, 12% of existing homes scored just E in their rating, with 2% achieving F and 1% getting G.
Only 12% of new-build homes were given an EPC rating of C, and less than 6% in total scored between D and G.
Older properties going out of fashion
As Hamptons’ research shows, an accelerating number of landlords are factoring this into their property investment choices. Older homes, adds Beveridge, could gradually fall out of favour over the coming years.
“Given it will prove impossible for all homes to secure an EPC rating of at least a C without significant cost, it’s likely to mean older homes will become considerably less attractive to landlords,” she says.
“Instead, investors may focus their strategy on buying new-builds, with rental homes becoming concentrated in blocks or streets where properties already hold a C rated EPC certificate or where it’s possible to achieve this without significant work.”