A key point in the government’s plan to tackle climate change is improving the energy efficiency of Britain’s homes.
For landlords, this means that their properties need to have an EPC rating of C or above by 2025. Otherwise, they will no longer be able to let them to new tenants.
Just three years away, this deadline can be intimidating. Especially because the costs to achieve the required ratings can be considerable. In fact, they can reach up to £10,000 per property.
In a new whitepaper titled Confronting the EPC Challenge, Shawbrook Bank assesses how this situation can be addressed and the negative impacts on the rental market reduced.
What’s the current status?
At the moment, approximately 25% of landlords are letting properties with energy ratings of D or worse. This is especially true for structures built before the Second World War. Unfortunately, over a third of Private Rental Sector (PRS) properties predate 1940.
However, another major issue is a lack of knowledge, Shawbrook found. 25% of landlords don’t know the EPC rating of their property, and another 15% said they weren’t aware of the changed regulations or the deadline. 20% knew, but could not estimate the costs of upgrading their properties in terms of energy efficiency.
Those who do know put the average cost at around £5,900 – not factoring in tenants having to leave during the improvements, or the likely spike in prices as demand increases.
Paul Elliott, Managing Director at Propp.io, a property finance comparison site, says: “Landlords need to build this into their investment strategy right now. Factoring in an additional 10% cost on top of the purchase price for works to improve the EPC can change a deal from a good one to a bad one. And ignoring the problem completely could lumber investors with useless stock – unrentable and potentially even unsellable.”
What market impact can be expected?
Overall, the market impact of the EPC policy is likely to be considerable. Most landlords are thinking about passing part of the cost on to tenants, who ultimately benefit from lower energy bills.
In addition, rents are likely to rise above their current levels, especially since many historic buildings will never achieve the requisite EPC ratings and thus disappear from the market.
In terms of investment, many landlords are already looking at energy ratings as a major decision point. 25% say that they avoid buying property with poor ratings. 15% even say they’re now exclusively interested in property built within the last two decades.
What should landlords do?
To begin with, landlords need to consult the EPC register to ascertain the current rating of their property. This is also a great source of information on improvements you need to make and which ratings you can reach.
As a next step, you need to round up funding options. Get ahead of the curve, before high demand drives up prices for materials as the deadline looms.
The key is to make energy efficiency a priority – both in upgrading your current properties and in purchasing new ones.
