Landlords should act now despite EPC uncertainty.
It’s certainly not been the easiest time for landlords over the last decade. They have been repeatedly squeezed by various Chancellors of the Exchequer and are now having to cope with buy-to-let rates at levels unseen for 15 years.
Meanwhile, proposed minimum Energy Performance Certificate (EPC) standards for rental properties have still not been confirmed, but with no new information to the contrary, the industry is working on the assumption that 2025 will see the introduction of the new energy efficiency regime.
Even if there is a last-minute delay, given the UK government’s stated commitment to achieve net zero by 2050, it’s a case of when they will be implemented rather than if.
After all, there has already been a steady stream of changes to EPC rules over recent years. For example, any rental properties with an EPC rating of F or G have been deemed to be below expected environmental standards since 2018. As a result, landlords have been mandated to improve the energy efficiency of the property to level E or above before the tenancy can be renewed or a new tenant introduced.
Furthermore, April 2020 saw these regulations apply to all tenancies: pre-existing ones were included as well as new ones, and applied to all assured tenancy, regulated tenancy and domestic agricultural tenancy agreements.
Now we’re working on the assumption that 2025 will see the introduction of new minimum EPC standards, where every buy-to-let property with a new tenancy will have to have an EPC rating of C, with 2028 as the mooted date when this will apply to all tenancies.
As a result, the landlord community as a whole has a lot of work to do to maintain the current size of the private rental sector come 2025. Indeed, with around 13 million homes in the UK currently possessing an EPC rating of D or below, the estimated cost of getting all UK housing up to an EPC of C or above is over £300 billion.
While this may make landlords shudder, a lot of work that they need to do isn’t going to be prohibitively expensive, and as tenants are unsurprisingly very mindful of energy costs right now, it’s more than plausible to suggest upgraded properties could command higher rents.
The issue is that buy-to-let rates are so much higher than they were two years ago and so remortgaging is probably not an option. As an alternative, bridging finance can provide a cost-effective way for landlords to raise capital to fund the necessary EPC renovations. In addition, bridging loans can provide finance much more quickly than a remortgage.
When it eventually is time to remortgage, hopefully buy-to-let rates as a whole will be lower, but at least the landlord will have the improved value of the property at their disposal, providing them with access to potentially lower rates due to the lower LTV, not to mention an ever-expanding selection of ‘green’ buy-to-let mortgage options, which reward landlords with properties possessing an EPC rating of C or better.
It’s important that landlords bear in mind that once the proposals are finally confirmed, tradespeople will be in high demand, leading to delays and higher costs. That’s why I firmly believe it’s in the best interests of landlords to act sooner rather than later. After all, the construction sector has still not fully recovered from the negative consequences of Covid, Brexit and the inflationary effects of the Ukraine conflict; material and labour costs are still inflated and rising, and the longer landlords leave it to undertake improvements to their properties, the more it will cost them.
Landlords shouldn’t be fearful of EPC rules; they are going to happen and it’s going to be cheaper in the long run to tackle them now. Bridging finance can provide the solution to funding their energy efficiency improvements and so landlords should act as soon as possible.
Constantinos Savvides, Head of Underwriting at London Credit