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EPC targets – are they unaffordable for landlords?

The incessant push to reduce carbon emissions and achieve net-zero continues, with the government standing firm on stricter EPC regulations for landlords from 2025.

It declared that, in three years’ time, EPC ratings should rise to ‘C’ or above for all new-build properties on the market. Changes would be phased in, with existing tenancies having until 2028 to comply.

This has been underpinned by the recent announcement to ban the installation of gas and oil boilers in new-build homes by 2025. These would be replaced by low-carbon heat pumps, of which the government will offer homeowners a £5,000 grant to cover the cost of the new installation.

But a recent study has uncovered a high level of scepticism among landlords, with many believing that energy efficiency upgrades required to comply with the regulations may cost up to £10,400 per property.

Here, we take a look at the study and consider how landlords can make their homes greener through cost-effective measures.

What is the landlord consensus?

Specialist buy-to-let lender Aldermore conducted a survey of 800 landlords. It found that 62% are ‘fully aware’ of the new legislation and 25% are ‘somewhat aware’.

It’s estimated that 40% of private rental properties have an EPC rating of ‘D’ or lower. Landlords with properties below ‘C’ believe it will cost an average of £10,400 per property to improve their rating.

When asked how they intend to pay for this, 71% of landlords plan to use savings, while 25% hope for government funding. Nearly a quarter (23%) say they will increase rent.

Aldermore’s report also states that new build may become investors’ first choice, as 65% of landlords claim they are now unlikely to buy a property with an EPC of ‘D’ at most.

David Smith, real estate partner at JMW Solicitors and a prominent legal representative fighting the corner for landlords, has warned that some buy-to-lets may not reach the ‘C’ rating in time.

He said: “Moving to band ‘E’ only affected around 200,000 of the least efficient properties based on government figures. Moving to a band ‘C’ will affect well over two million properties, approaching half the buy to let sector depending on whose figures you prefer.”

“The approach taken by the Department for Business, Energy & Industrial Strategy in their proposal is difficult to understand as it fails to take into consideration the reality of properties in the UK.”

Will there be financial support for upgrades?

Given the government’s commitment to reach net-zero carbon emissions by 2050, it’s been suggested that more incentives may be introduced to help landlords meet these targets – perhaps in the form of grants or low-cost loans.

It already attempted this with the tried-and-failed Green Homes Grant, but the scheme was short-lived due to administrative issues. However, it’s speculated that a successor scheme to the grant will be launched in due course.

The cost of any improvements depends on what work needs to be done. Estimates show that bringing a property rated ‘D’ or below up to a ‘C’ or above will cost an average of £10,000 – not far off from landlord estimates seen in the survey.

An effective way the government can influence the green transition is to incentivise mortgage lenders to offer cheap finance for landlords eager to carry out eco-friendly improvements. We are already seeing some evidence of this, with major buy-to-let lenders offering green products to landlords.

However, this week (February 3 2022), the Bank of England raised interest rates from 0.25% to 0.5%. The news comes after the announcement that the average household’s energy bill will rise by £693 annually after a 54% increase to the price cap. This will take effect in April 2022 and will impact over 22 million households – meaning even tougher constraints for landlords.

Cost-effective green measures

Despite the pressure to get rental properties up to standard, there is certainly every incentive to do so. The more energy efficient your home is, the more desirable it will be to tenants that seek low energy bills and a low carbon footprint.

Typical improvements to achieve better EPC ratings can include roof insulation, double or triple glazing, floor insulation, and external or internal wall insulation.

But some cost-effective solutions also play a role, such as switching incandescent bulbs with LED bulbs and increasing hot water cylinder insulation. Upgrading or installing heating controls can also be an effective way to control temperature and timings.

Of course, the phasing out of gas and oil boilers in new homes shouldn’t be ignored, and looking at low-carbon options sooner rather than later is a good move.

As we shift towards a post-pandemic world, it’s worth working out what improvements you can make to improve your EPC rating, and the above measures – while considered minor – are the perfect place to start.

Here at Holland Properties, we have been an established estate and letting agent since 1999 and can help you to get the most from your rental properties. We operate in Docklands and the surrounding areas including Surrey Quays and Rotherhithe.

For further guidance on any part of the lettings process, please contact us today. You can also request a free and instant online valuation to see how much rent you could be charging in the current marketplace.