Landlords are anticipating an expected change in the EPC (Energy Performance Certificate) rating rules by investing in ‘green’ upgrades to their properties. According to a recent report by the Buy Association, tenants are willing to pay on average 13% higher rent to live in a house with a good energy performance rating.
The government introduced new legislation for domestic private rented property on 1 April 2020, to specify that they must have an EPC rating of E or above, unless there is a valid exemption in place. Properties with an F or G rating must have improvements made, such as roof insulation, draught proofing, and hot water cylinder insulation.
With energy bills set to rise even more steeply in the spring of 2023, both renters and buyers are more concerned than ever before about the energy efficiency of a property. It is not only lower bills which is motivating consumers, but also a desire to live in an eco-friendly home that causes the minimum of environmental impact.
Therefore, both landlords and property developers now consider that investing in energy efficiency measures is worth the extra initial outlay. The government has already sent out new proposals that would see all new rental properties requiring a minimum EPC rating of C by 2025, which would be extended to 2028 for existing rentals.
This has led to a trend of prospective buy-to let (BTL) landlords purchasing newer properties, which tend to have higher EPC ratings. John Alker, head of sustainability at Legal & General, told the Buy Association that investing in greener properties made sound commercial sense for landlords.
He told the publication: “Climate change and energy efficiency have risen right up the agenda for many people when choosing a home.”
He added: “With buyers and renters prepared to pay a 10.5% and 13% premium respectively, energy efficiency and sustainability in homes make a material difference to the consumer. This research helps cement the business case for investors and developers to invest in low carbon homes.”
“It also shows that clarity is key when it comes to low carbon and energy efficiency. Energy Performance Certificates are not well understood – they need reforming to better reflect real world energy consumption and to help incentivise adoption of low-carbon technology.”
Landlords who need to retrofit their existing portfolio in order to comply with the new EPC rating rules have a number of funding options open to them. The government has set a cost cap of £3,500, meaning that they will not be required to spend more than this amount on energy efficiency improvements.
Funding options include the Energy Company Obligation (ECO), local authority grants, Green Deal finance. If landlords cannot secure funding via these methods, then they must use their own funds to carry out improvements. If after spending up to £3,500, the EPC rating is still not improved to E, then the landlord may register an exemption.
The exemption will be valid for five years, after which another attempt to improve the EPC rating must be made.
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