Buy-to-let landlords have joined the drive to improve the energy efficiency of the UK’s homes, taking steps to improve the EPC ratings of their properties ahead of tightening regulations.
Roughly one in five buy-to-let landlords have undertaken a refurbishment in the last 12 months to improve the energy efficiency of a property, research by Shawbrook Bank has found.
At the moment, buy-to-let homes in England and Wales need to have an EPC rating of E or above.
However, government proposals currently under consultation would mean that new tenancies could be banned on rental properties with an EPC rating of D or below from 2025, whilst those with existing tenancies would need to comply by 2028.
Research from Shawbrook Bank shows landlords have begun to take steps to improve the energy efficiency of their properties ahead of new rules potentially coming in 2025
While the industry has welcomed landlords’ efforts thus far, there are concerns that the cost of renovations may render some buy-to-let property owners unable to make the required changes.
Timothy Douglas, policy manager at the property industry body Propertymark, said: ‘It’s great to see that landlords who can, are proactively making steps to improve the energy efficiency of their properties.
‘It is now well over twelve months since the legal requirement for EPC band E rating applied to all relevant tenancies in the private rented sector in England and Wales, so consequently letting agents are seeing an increase in the number of properties with an EPC band E and above.
‘However, the UK Government’s latest proposals for EPC band C presents financial and practical challenges for many landlords across the country which if not tackled, could result in some landlords leaving the market.’
EPC is a rating scheme which bands properties between A and G, with an A rating being the most energy efficient and G the least efficient.
In the private rental sector, roughly two thirds of homes have an energy rating of D or below, meaning there are around 3.2 million privately rented properties in England and Wales requiring work in order to meet government targets.
Ensuring adequate loft, underfloor or cavity wall insulation, upgrading to double or triple glazed windows, replacing the heating system, draught proofing and hot water tank insulation are just some examples of improvements that can boost an EPC rating.
For an average three-bedroom semi-detached home, the cost of installing double glazed UPVC windows may vary from around £2,500 to over £6,000 according to MyBuilder
What changes have landlords made so far?
Of the landlords that had undertaken a refurbishment, 22 per cent had replaced the boiler and heating system in their property, while a further 23 per cent had replaced the windows and 18 per cent had installed new white goods.
Whilst the impending EPC regulations are thought to be primarily behind the changes, making a property more energy efficient may also help them to attract tenants, as their bills would be lower.
One in ten private renters suggest they would stay in their current property longer if their landlord made changes to the property which benefit the environment, according to Shawbrook Bank’s research.
Some tenants would also pay more in rent if the landlord made certain changes to their property. Almost one in five said they would pay more if windows were replaced, 15 per cent would pay more for a new boiler and heating system, and one in ten suggested that installing solar panels would justify paying more rent.
According to the government’s own consultation, around 3.2 million privately rented properties in England and Wales have an EPC rating of D or below
Energy bills are predicted to rise substantially next year, – perhaps by a further £280 from where they are now – thanks to the energy price crisis and further reviews of Ofgem’s price cap.
This means energy efficient changes to a property will not only help the environment but could also save tenants a significant amount in monthly bills.
Richard Davies, head of residential lettings at Chestertons said: ‘Any improvement work to a property impacts on its value and can therefore drive rental prices.
‘Those landlords carrying out major improvement work to their properties are likely to want to see a return on their investment in order to justify the costs.
‘At the same time, tenants may find that the property’s updated EPC rating will lower their home’s running costs, particularly heating, which is a positive factor long-term.’
Will every landlord follow suit?
Whilst some landlords may be able to shoulder the upfront costs associated with improving their EPC ratings, others will likely struggle to make the deadline without support from the government and lenders.
The average D-rated property would need £12,746 spent on it to reach a C band, according to analysis by Savills.
The cost of upgrading a home from an E to a C rating is more than £17,000, while the cost of transitioning from a G rating to a C is estimated to be nearly £27,000.
According to the National Residential Landlords’ Association, the average net annual rental income for landlords is just under £4,400 a year, meaning that it could take landlords three years on average to just recover the costs for merely moving from an EPC D to a C.
Adding loft insulation is one of the cheapest and most effective ways to increase a property’s EPC rating.
It will also hurt landlords operating in areas where house prices are lower, who may ultimately consider the costs of improvement as too much to bear when considered as a proportion of their overall investment.
‘To reach energy efficiency targets, we first need to dispel the myth that landlords have untold wealth,’ said Douglas. ‘Many landlords juggle their responsibilities with work and other personal and financial commitments and will need support to improve their properties.
‘To help cover costs there is a concern that landlords may increase rents, but it is not always possible for landlords to increase rents in their local areas, and this is unlikely to solve the size of the challenge in certain parts of the country.
‘For instance, we know that in some local authorities, particularly in the North and Midlands, the estimated cost of retrofit is over 15 percent of the property value – as opposed to as low as two percent in many Southern districts.’
There are also non-financial considerations that need to be taken into account by landlords, as well as the Government.
Depending on the work that needs to be done, planning permission may be needed, or tenants may need to vacate the property, for example.
And regardless of the cost and practicalities, there are some properties that are simply incapable of reaching the higher EPC ratings.
Almost 1.7 million homes in England and Wales with an EPC rating between D and G cannot be improved to reach a C rating, according to research by Rightmove.
Ben Beadle, chief executive of the NRLA, said: ‘The vast majority of landlords are individuals and not property tycoons, and the Government needs to recognise the difficulties faced in improving the energy efficiency of the rental housing stock.
‘Around a third of all private rented homes in England were built prior to 1919: a higher proportion than [homes that are owner-occupied].
‘Almost 45 per cent of rented properties have no cavity walls making insulation difficult and costly to achieve.’
What can landlords with energy inefficient homes do?
Put simply there are three options. Start making improvements where possible; sell up; or sit tight and wait for further government subsidies or grants.
Two-thirds of landlords stand to be affected by the introduction of a minimum energy rating of C, according to NRLA research, and of those, 27 per cent would exit the market if regulations banned renting out properties with an energy rating of D or below.
Depending on the landlord and tenant’s circumstances, as well as the type of property, small pockets of funding are available.
This includes Local Authority Development Grants, Energy Company Obligation and Home Upgrade Grants.
But for the vast majority, there is no support available, leaving them a choice to either do it themselves or wait for further government intervention.
Beadle said: ‘Despite the unique challenges the sector faces, just five per cent of private rented households have received any financial support under Government schemes to improve the energy efficiency of properties.
‘Ministers need to develop a bespoke package that is fair to landlords, tenants and the taxpayer that provides the support the sector needs to make the necessary investment in energy efficiency.’
Douglas added: ‘There are many challenges for the private rented sector and we are hopeful that the UK government will introduce more support such as reducing VAT on green home upgrades to help incentivise more people to install low -carbon technologies and improve energy efficiency.
‘Where applicable landlords and letting agents should be exhausting all avenues that are available to them to help make improvements.’
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