While the deadline on new minimum EPC ratings for landlords is still unclear, some are already changing their behaviour in preparation for what’s to come.
Newer homes are generally more energy-efficient, and with that comes the likelihood of a better Energy Performance Certificate rating (EPC). This not only benefits the tenant, but for landlords this could be a necessity of future property investments.
A new survey from Shawbrook Bank has demonstrated the effect that this is already having on buying habits. A quarter (24%) of landlords said they are likely to avoid buying property with a low EPC rating, meaning old, draughty rental homes could be a thing of the past.
Almost a third of respondents (30%) said they would invest in a property that was already rated C or above in its EPC, while 24% said they would look at properties that had the potential to achieve C or above – presumably to add even more value to the investment.
Landlords veering towards new-builds
Many existing property investors already see the benefits of investing in and renting out a newly built property. While there are benefits to spending less on a ‘doer-upper’, offering tenants a higher quality, modern and energy-efficient home can result in higher demand and higher rents.
In Shawbrook’s survey, 15% of landlords said they would only buy properties that were built within the last 20 years. The bank points out that houses built before 1940 are unlikely to have an EPC rating of C or above, so this is a clear sign of landlords future-proofing their investments.
Shawbrook also found that more than a quarter (28%) of rental property owners had received complaints from tenants about a property’s EPC rating. A further 16% had received multiple complaints. This could even be set to rise as tenants begin to feel the pinch due to energy cost rises.
Emma Cox, managing director of Real Estate at Shawbrook, said: “It’s concerning to think that a significant proportion of properties, within the private rental sector, could fall out of favour due to poor EPC ratings and significant improvements needing to be made in a short period of time.
“The market has a responsibility to offer landlords more guidance on what the proposed legislation will mean for them, where to start with improvements, and how to sustainably finance the works.”
EPC: What’s happening and what can be done?
The current Minimum Energy Efficiency Standard in the private rented sector means that all privately rented properties must have an EPC of E or higher. This has been in place across all tenancies since April 2020.
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 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.
Emma Cox adds: “Proactive landlords, already making changes ahead of the proposed deadline, will be in a strong position for the future, constantly one step ahead of the upcoming changes.
“While our research showing that most landlords are set to commence improvement works within the coming 14 months, making changes sooner rather than later will limit the risk of supply and labour shortages for landlords as we edge closer to the proposed 2025 deadline.”
Shawbrook is one of a number of banks that offers ‘green mortgages‘. Depending on the product, these can apply to homeowners or landlords and can offer an incentive to reward customers when they achieve higher energy efficiency ratings on their properties.