What landlords need to know about EPC regulations
If you’re a landlord already or you’re in the process of purchasing a buy-to-let property, you will need to become aware of the safeguards and regulations that are in place to protect tenants and ensure living standards are maintained in rental properties.
One such regulation is the need for rented homes to be energy efficient, as proven by an Energy Performance Certificate, or EPC. Of course, these are required upon sale/purchase of a house too. But the requirement for landlords to hold an EPC is to allow for a Minimum Energy Efficiency Standard (MEES) for those living in rented homes. This means tenants across England and Wales have the right to expect their homes to be relatively energy-efficient, warm and damp-free.
The current Minimum Energy Efficiency Standard (MEES) suggests that buy-to-let properties are required to have an EPC rating of E, but that might be changing. The UK Government wants to tighten this regulation still further, as part of its journey towards net zero carbon emissions, bringing the MEES for rental properties up as high as a C.
This is relevant to you if you’re thinking about investing in a buy-to-let property. While the change to band C is currently only at the consultation stage, the expectation is that it will be brought in from the end of 2025 for new tenancies. This could be an expensive additional cost if you’re considering buying an older property.
What is an EPC?
Energy Performance Certificates, or EPCs, were brought in, in England and Wales back in 2018, as a way to improve the country’s housing stock. The idea was to compare properties in terms of energy-efficiency by grading them from A to G, with A being the most efficient. The EPC report offers a simple, colour-coded way to see how effective various energy conservation and reduction measures would be at the property. These might include wall/loft insulation, boilers, smart meters, lighting and windows.
All EPCs are completed by qualified energy assessors and show the current rating of a property, as well as recommended improvements and a potential rating along with associated cost savings if these improvements were carried out. It is a legal requirement to have an up-to-date EPC if you plan to rent out a property.
How will EPC changes affect you as a landlord?
Currently, the legislation says that all rental properties must be EPC E-rated. But, in a consultation document published in 2020, the Government has suggested a new C rating requirement should come into law by the end of December 2025 for new tenancies, and 2028 for existing tenants.
This is no mean feat given that currently, the average EPC rating of a house in the UK is D.
And this is just the start: by 2030, the aim would be to increase the requirement to Band B. This is all aimed at improving energy efficiency and reducing carbon emissions to support the UK’s aim to become net carbon zero by 2050. The Government also believes these changes will “decrease energy bills for tenants, increase the quality, value, and desirability of landlords’ assets and provide greater energy security through lower energy demand on the grid and reduced fuel imports.”
So what do you need to do?
It’s thought that for most landlords, a rating of EPC C is achievable, although it may require some investment. Property website, Rightmove, analysed the energy efficiency ratings of over 15 million homes in relation to this. They found that of the 57% currently rated from D to G, there are only around 11% that would be unable to reach a C.
The kinds of upgrades or changes you might need to make will be things like improving insulation, installing smart meters, and upgrading to more modern, efficient boilers. A lot of which will require a not insignificant level of spending.
1. Check whether your property might be exempt
There are some exemptions to meeting the new minimum EPC regulations. These include:
- Listed buildings where it’s deemed upgrades would alter the character or appearance of the property to an unacceptable degree.
- Required upgrades or changes are not approved by the landlord’s BTL mortgage lender.
2. Check whether expected costs might fall under the spending cap
In order to support landlords with the upgrade process, the government have brought in a spending cap. This means that if it would cost above a certain amount to bring your property up to the correct rating you can still continue to legally rent out your property in the meantime. The current cap is £3,500 for upgrades, but it is expected that this will rise to £10,000 in the future. As a percentage of a lower value property this could be significant.
3. Check if you are eligible for funding for required improvements
There are various improvements for which you may be able to apply for funding or energy grants.
It’s unlikely that you’ll be able to fund improvements through your mortgage when it is a buy-to-let, so you may have to pay for them yourself. Remember though, it may be possible to go back to your lender once the work has been done. If the property is reappraised or re-valued it may be that you’re able to borrow more against it.
4. Make a plan
Don’t panic! It’s important to think about and plan for these changes in good time by getting a quote for all work that needs doing in order to bring your EPC rating up to the correct level. Make financial projections for the cost of upgrades, lending and your expected rental income in the future. This will all help you to future-proof your investment.
If you’re interested in buy-to-let mortgages and would like to know more, our friendly team will be happy to help.