Could EPC improvement costs cause a rent rise for tenants?

 

As landlords consider the costs of making their rental homes more energy efficient, a rent rise could be on the cards as a knock-on effect.

Energy efficiency in rental homes continues to be a hot topic, as growing numbers of landlords are now looking at how they can improve the EPC ratings of their property portfolios.

A report from Shawbrook Bank, titled Confronting the EPC Challenge, has revealed that more than half of landlords will pass on at least some of the improvement costs to tenants in the form of a rent rise.

In welcome news to some renters, though, just less than a quarter (23%) said they would not pass costs on. Landlords in London are the most likely to implement a rent rise for their tenants, with 68% saying they would pass on at least some of the costs.

Costing up the rent rise

In Shawbrook’s survey, buy-to-let landlords estimated it could cost around £5,900 on average to get their existing properties up to scratch. This would in theory be to improve their EPC ratings to a C or higher, which is a proposal currently on the cards by 2025 in England.

However, the bank also found that property investors had already spent around £8,900 on improvements to their rental homes. What’s more, ongoing issues such as labour shortages and higher material costs will continue to play a part.

A further 18% of landlords said they expect rent rises to come about as a natural consequence of the new regulations.

Emma Cox, managing director of real estate at Shawbrook Bank, says: “Landlords will need to strike an important balance when it comes to making the necessary energy efficiency improvements to their properties.

“While work needs to be carried out quickly to prevent any void periods during a tenancy, having a clear plan in place as to how they will fund any necessary works is crucial.

“Tenants could be caught in the crossfire as landlords seek to recoup some of the costs. While tenants can expect to benefit from cheaper energy bills as a result of greater energy efficiency, any savings on bills could be outweighed by a market wide rent rise in 2025.”

A greener future

Everyone can play their part towards alleviating the climate crisis, and housing is a major factor of this in the UK. The private rented sector is already seeing a shift of preference towards more environmentally friendly homes, and this is only set to increase.

Cox adds: “For landlords unaware of the level of work that may be needed on their property, or properties, as well as any associated costs, speaking to a mortgage broker or lender sooner rather than later could help to paint a clearer picture.

“Understanding when they need to begin works to meet the proposed deadline will allow landlords the opportunity to fully assess their options and funding requirements.

“Landlords have a key part to play in the drive towards a greener future for the UK. While challenges and questions still remain, bringing the wider market together to educate landlords and support tenants during the process will help to mitigate some of the upcoming challenges.

Clarifying EPC ratings rules

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.

But government regulations aside, properties that demonstrate the highest eco-friendly and energy efficient characteristics are likely to attract more tenants. As today’s tenants expect more from their homes, a rent rise may not be a deterrent when properties offer higher standards.

Many landlords are opting to invest in new-builds over older homes as a way of future-proofing. Others could need to make major improvements to their properties to get them up to scratch to meet potential minimum EPC ratings of C in 2025.

BuyAssociation specialises in new-build and newly renovated property investment opportunities, direct from the developer, which benefit from the highest energy efficiency ratings. Get in touch to find out more. 

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Could EPC improvement costs cause a rent rise for tenants?

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