First introduced in 2008, an Energy Performance Certificate (EPC) rates a property’s energy efficiency on a scale from A to G, with A being the most efficient and G being the least. The EPC also includes tips on how to improve a building’s energy efficiency using cost-effective methods.
However, the Government recently proposed some important changes to the rating requirements, with a target for all rented properties to achieve an EPC rating of C or above by the year 2025.
Unfortunately for landlords, having to jump from a minimum E to a C within a short space of time will be extremely costly and could even render many of them ‘un-mortgageable and unprintable’.
According to the Ministry of Levelling Up, Housing and Communities, there are some 13 million homes in England and Wales with an EPC rating of D or below, so the task of improving the energy efficiency of that many properties is not going to be straightforward, with many doubting its feasibility altogether.
What do the changes entail?
Currently, any non-exempt property in England, Scotland or Wales that is being built, marketed for sale or let as an entire property requires an EPC. The minimum energy efficiency standards (MEES) allowed for rented properties is a minimum rating of E.
Changes introduced to the MEES in 2018 means that it is no longer legal to let a property, residential or commercial, that has a rating of F or G. This was initially restricted to new leases or lease renewals, however it will be extended to include existing leases from April 2023.
Whilst the latest proposals are positive from an environmental perspective, as they help propel the Government towards its long-term net zero targets, there is a growing concern amongst property owners about the cost implications of such a move.
According to the proposals, all rented commercial properties are expected to achieve a minimum EPC rating of B by the year 2030, so this earlier 2025 target is viewed as the first phase of an ongoing effort to improve the UK’s carbon footprint.
From 2025, the new rules mean rental properties with an EPC rating of D or below will not be able to take on new tenants, so it is vital that landlords and property owners start improving the energy efficiency of their buildings sooner rather than later.
There are, however, some buildings that are exempt from the current requirements and proposed changes. Exemptions relate to:
- Leases shorter than six months or longer than 99.
- If the value of the building will be negatively impacted by more than 5% or it will take longer than 7 years to recoup the cost of renovations.
- Tenants must consent to the improvement measures required to enhance the building’s energy efficiency – if they do not, then the building is exempt.
- If all the possible improvement measures have been made, but the building has still not reached the target, then it is also exempt.
Find the appropriate support
Whilst there is no doubt that the intentions of these changes are positive and much-needed, it is important that the necessary financial support is offered to landlords, else there is a risk that a substantial section of the private rental sector will become unsellable in 2025.
Unfortunately, it will take a lot more than a straightforward boiler change for owners to achieve a EPC rating of C. In fact, experts have predicted the total cost to landlords will be an estimated £21.5 billion or £7,646 per property – a significant sum of money in the current economic climate.
One of the best ways to cushion this financial blow is to be proactive. The first step for landlords to take is to check their EPC rating, ensuring it is up to date. Once they know their current position, it becomes a lot easier to create a strategy for achieving regulatory compliance.
Although the Government recently removed an important financial lifeline for landlords, the Green Homes Grant (GHG), which offered up to £5,000 to carry out energy efficient upgrades, there are other incentives available for landlords to take advantage of.
Through the £450m boiler upgrade scheme, landlords can apply for up to £6,000 to switch a gas boiler for a more efficient heat pump. However, time is of the essence for property owners, as this scheme is only able to support 90,000 households.
The removal of VAT on the installation of solar panels is also expected to save around £1,000, which will go a long way to helping owners achieve a C rating.
The key here is to act fast – with interest rates increasing, it’s important that brokers and even lenders start funding talks immediately to secure the best deal possible. Of course, as an experienced short-term property finance provider, we understand the importance of securing funding quickly, so contact our in-house team of experts if you require financial support with an upcoming project.