The countdown is on to bring the UK rental market up to scratch when it comes to EPC ratings and energy efficiency. But most landlords have it covered.
There is a Bill currently making its way through Parliament that is likely to result in a further shakeup to the current minimum energy efficiency standards (MEES) that apply to the UK rental sector.
The Bill requires that the regulations will change to mean all new tenancies must have an energy performance certificate (EPC) rating of at least Band C from 31 December 2025. For existing tenancies, this will apply from 31 December 2028.
While the rule change is not set in stone, it seems likely that the government will tighten the rules around energy efficiency in rental homes, as the country strives to meet its emissions commitments and targets. And many landlords are already taking matters into their own hands to get ahead of the game.
Portfolio landlords seek top EPC ratings
New research from Landbay has found that 70% of UK landlords are aware of the current proposals to improve energy efficiency in the sector. While 68% of those surveyed own properties rated D or lower, 80% plan to make changes to bring their EPC ratings up to a C.
It seems that portfolio landlords – those with 10 properties or more – are taking the potential rule changes the most seriously. Not only that, though, but they are also planning on using EPC ratings as an investment tool and a way to increase the value and desireability of their properties.
More than half (53%) of this group said they would consider investing in a property rated D or lower, and then bring it up to at least a C rating with renovations. Around 32% of those with four to 10 properties would do the same, says Landbay, and this falls to just 20% of non-portfolio landlords.
The green mortgage market is another avenue landlords are considering, as it offers incentives to property investors buying energy efficient properties. Of the landlords that are aware of the government’s proposals, 84% are interested in the potential mortgage discounts they could get.
Top-rated homes draw tenants
According to Paul Brett, managing director, intermediaries at Landbay, there are numerous advantages to investing in ‘green’ properties for landlords.
“Our survey shows that most landlords are aware of the potential new EPC rulings by 2025 and many will have to upgrade their properties to a C rating. Some of them, especially the larger portfolio landlords with 10 or more properties, are looking at how they can turn this to their advantage.
“Buying properties and making them more energy efficient will raise the value of the property and the rental income landlords can charge, as well as reducing tenant’s energy bills. A few extra thousand pounds spent at the buying stage will be an investment for the longer term.
“As awareness of EPC requirements and green mortgages improves, I expect to see many more landlords taking advantage of the lower rates offered by the green mortgage.”
Investors are seeing the benefits
Last month, research from Hamptons revealed that property investment trends are already leaning towards more energy-efficient buildings, in light of looming EPC upgrade rules.
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.
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.”
