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How are buy-to-let landlords adapting the prospect of the new EPC standards?

The government’s proposal to make sure all new rental properties have an EPC rating of at least a C by 2025 is drawing closer but given the enormity of the task, how are buy-to-let landlords adapting to the prospect of the new EPC standards?

Currently, domestic properties being rented privately must meet a minimum EPC rating of E.  However, from 2025 all new tenancies will need to be rated C or above and this will be extended to all rented properties from 2028.

The early signs of the 2025 deadline being met are positive.  So far this year, the share of homes bought by investors with an EPC rating of A-C is 50%.  This is the highest figure ever recorded and shows a marked increase on the 39% recorded in 2021 and the 33% recorded in 2020.

But is this increase down to a concerted effort on the part of our landlords?

Arguably not.  Many feel the uplift is due to the fact landlords are buying more energy efficient homes, either because the required improvements have already been made or because landlords are buying newer housing stock which will automictically come with a B or C ranking.

This feeling is supported by the fact 66% of the new purchases made by London landlords in 2021 already had an EPC rating of C or above.  While this figure drops the further north you go (34% of investors in the North East bought a buy-to-let properties with an EPC rating of C or above during the same period) the difference would come out at around the 50% reported.

Why are the new EPC standards being introduced?

Obviously, we are currently in a situation where emissions must be reduced, and every aspect of our lives needs to become more environmentally friendly.  However, aside from the environmental considerations, the changes should have a more immediate and more tangible benefit for tenants too.

Better ratings will save tenants money.

Moving from a D rating to a C rating will save a tenant around £285 a year on their gas, electricity and water bills while one moving from E to C could save as much as £725.   And, if all privately rented homes with an existing EPC rating of D-G were upgraded to at least a C, it would save tenants an eye watering £844m per year!

These savings could become more marked if, as expected, utility prices continue to soar.

When will landlords make the required changes?

The one thing  that’s for sure is the new EPC regulations will need to be met.  Landlords could face fines of up to £30,000 if they aren’t by the 2025 deadline.  However, there is still a big question of when they’ll make the required changes.  Will they act now or hold out until nearer the deadline?

While it may look like the changes are still some way off,  there is a lot for landlords to think about.

Firstly, despite the environmental and financial benefits, it may take considerable investment for landlords to bring the EPC ratings of some properties up to a C.  This could persuade some landlords to bring down the average age  of their buy-to-let portfolios, selling off older properties and replacing them with newer ones during the run up to the 2025 deadline.

Given the demands for property – particularly in London – and ever-climbing rents, the thought of potentially missing out on valuable rental revenues while properties are either replaced or brought up to standard presents landlords with something of a dilemma.

There is also the question of whether landlords will need to raise capital, either to fund conversion costs like insulating walls, triple glazing windows or upgrading heating systems or to secure bridging finance for new properties.

London property is always an attractive investment but, depending on the level of capital that needs to be raised, the process of securing finance may have to begin now so that next steps can be taken and concluded well ahead of 2025.

Finally, whether landlords are seeking to upgrade their properties for sale in the future or planning to sell now to replace current properties with newer and more environmentally friendly alternatives, it’s important to remember property is valued based on their current market value and value is driven by demand.

In the near future the energy efficiency of a property could have a real bearing on demand making less energy efficient properties harder to sell and more energy efficient properties more expensive to buy.

If you are a landlord and have any questions relating to the new EPS standards or would like any other help managing or growing your buy-to-let property portfolio, please email me at Jeremy.Tulloch@collinshoy.com or call me on 0208 515 6600.