Landlords are currenty worried about the upcoming changes to the Energy Performance Certificate (EPC).
With these changes, landlords may face higher costs and have to invest a lot of money in each of their properties.
In this article, we’ll explain how the latest EPC changes will affect landlords.
The upcoming EPC changes for Landlords means that a minimum EPC rating of ‘C’ or above for all rental properties must be reached by 2025.
(a) all new tenancies must have an energy efficiency performance of at least EPC Band C from 31 December 2025; and
(b) From 31 December 2028 all existing tenancies must be an EPC ‘C’ or above.
What is EPC?
EPC stands for Energy Performance Certificate and is a certificate awarded to homes and businesses that meet certain standards set by the government.
These standards include loft insulation, windows, doors, lighting, and many others. The property is rated on a scale from high to low efficiency.
A low rated certification indicates the utility bill payer will have higher energy bills unless the property owner makes energy efficiency improvements.
What are the EPC standards now?
Since October 2008, rental properties have had to meet certain energy efficiency standards. These include having a minimum energy performance certificate (EPC), which must be registered annually.
On April 1st 2018, MEES came into effect. This meant that all properties needed to be an ‘E’ rating or higher, if they were being sold or let out.
G is the least efficient on the EPC scale and A is the most efficient.
Minimum Energy Efficient Standards (MEES) became law in 2018. These standards meant that all properties that were being let or sold had to have a minimum rating of ‘E’ or above. It was also applied to existing tenancies in April 2020. If it didn’t achieve an ‘E’ or above it couldn’t be let.
I was very fortunate in that all of our properties were an E or above, so we didn’t need to spend much money on improving any of our properties. In fact most were C or above, which was great news! But things are about to change and it could be a costly change for landlords.
What are the proposed EPC changes?
The government has announced some major changes to how energy performance certificates work which could result in landlords paying an average of £10,000 to improve their properties’ energy efficiency.
Improvements will include things like insulation, boilers, windows, doors, lighting and heating controls. Of course these are all very expensive items and require a cash investment that a landlord might not have.
However, the amount you spend depends on what your current energy performance certificate (EPC) rating is.
If it’s good, you won’t have to make any changes. But if it needs improving, you’ll need to find some way to get the money.
If improvements are needed, then you’ll need to implement these changes yourself at your own personal cost.
By 2025 a ‘C’ rating or above needs to be achieved on a rental property if it is a new tenancy.
What does this mean for Landlords?
Energy Performance Certificates, or EPCs, give an energy performance rating for properties, with the most energy-efficient properties being awarded an A rating while the least efficient are rated as a G. Current legislation requires landlords to achieve a minimum of an E rating in order to legally rent out a property.
The new minimum rating is a C which has been recommended by the Government. The new bill suggests that from 2025, properties that will be used for new tenancies must be rated C or above. This will then include all rental properties from 2028.
As a landlord, you must give your tenant an EPC when they move in. If you don’t have an EPC then the current penalty is £5K, however the government are looking to change that to £30K by 2025!
This is a huge increase, but the government has a target of net-zero for carbon emissions by the year 2050.
How much might it cost?
Of course, if your property is highly energy efficient then it won’t cost as much as a property that isn’t.
For example, you won’t be affected by the changes if your property is a C rating or above. Although if you are a landlord of a property with a D or E rating, and you’re not exempt, then this could end up costing you a lot of money!
The good news is that at the moment you won’t be expected to pay for unlimited improvements. If you can’t make enough improvements to get an EPC E rating for the total amount of £35,000 then you can register for an ‘all improvements made’ exemption. This threshold looks like it will increase to £10,000 per property. The figure that is forecast as an average cost to landlords making improvements is just under £5,000.
I think this is a ridiculous figure and a lot of landlords won’t have this amount of cash just waiting to be spent on each property. Can you imagine the cost for landlords with 10, 20 or even 100 properties!
Landlords are Unaware of the changes
A survey was carried out by Landbay, and almost half non-portfolio landlords think the government’s plans to make it compulsory for all new tenancies to have an energy performance certificate (EPC) rating of at least C by 2025 are unfair.
The research found that 53% of respondents had no idea what the proposed changes mean for them. Of those who did know, almost half (49%) thought the rules would affect fewer than five properties.
Of those who do own multiple properties, around a third (34%) said they would consider selling some of their portfolios to meet the new standards.
When asked how many properties they owned, the majority of respondents (63%) said they had one to three properties. Just over half (54%) said they had four to 10 properties, while eight per cent had 11 to 50 properties.
Landlords with 10 or more properties were much more likely to be aware that the government wants to introduce mandatory EPC ratings for new tenancies (80%), compared to landlords with one to three (42%).
However, even among landlords with 10 or more homes, nearly half (48%) said they didn’t know what the proposed changes meant for them.
A quarter (24%) said they would upgrade their properties to achieve the required C rating, while another 24% said they would wait until the deadline to complete improvements.
Landlords are considering selling up!
Fortunately we don’t have many properties that are rated below a C, but if they are we are considering selling those properties.
In fact, a new report from TMW reveals that more than half of landlords with properties that are required to improve their energy performance have considered selling up.
The research, carried out among 600 landlords across England, Wales and Scotland, revealed that 52% of landlords with properties that required improvement to their energy efficiency ratings had considered selling up.
Of those, almost three quarters (73%) believed it would be difficult to sell their properties within the timeframe set out by the government, while nearly half (47%) felt they could not afford to invest in the necessary upgrades.
More than a quarter (27%) of landlords surveyed did not know whether they would be able to sell their properties within this timeframe.
Those with smaller portfolios were less likely to consider selling, however, with just under a fifth (19%) of landlords with one property having thought about doing so.
This figure increased to 28% among landlords with five properties, and 33% among those with six to 10 properties.
Just over a third (35%) of landlords with 20 or more assets were considering selling.
What changes might need to be made to your properties
Firstly, you’ll need to make sure that you’ve prepared properly. If your rating is at E or F, it’s probably best to focus on improving your energy efficiency ratings. This can be done by focusing on the big jobs first then moving onto the smaller areas where you can make energy improvements. The things that you will need to look at are:
- Loft and cavity wall insulation
- Double glazed windows and doors
- New energy-efficient boiler
- Using a renewable energy source such as solar panels or a ground-source heat pump
- Ensure all lighting is as efficient as possible, using LED light bulbs
- Install a smart meter and smart thermostat
- Insulate the hot water cylinder, if there is one
- Seal or replace draughty doors
The items at the top of this list are very costly, and it is crazy to expect landlords to do all this for every property they own.
Overall, the new EPC changes will lead to higher costs for landlords. 2025 may seem a long time away, but I would urge all landlords to check the energy rating of their rental properties.
If your property is currently below a C, then start looking into any works needed now. Don’t bury your head in the sand. Unfortunately a landord cannot use the excuse of ‘I didn’t know’.
The fines are heavy and if you don’t make the improvements then you won’t be able to let out your property. For a landord this would be a financial disaster!
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