A third of landlords 'not confident' their properties can reach government target of a 'C' EPC rating for energy efficiency ahead of 2025
08-25-2021
A third of landlords 'not confident' their properties can reach government target of a 'C' EPC rating for energy efficiency ahead of 2025
- Government wants to make EPC 'C' a requirement for new tenancies by 2025
- New survey shows a third of landlords don't think they can meet the target
- Reasons include older properties, financing and lack of return on investment
- Some would rather sell up than meet the new standards
Are you a concerned landlord?
By HELEN CRANE FOR THIS IS MONEY
More than a third of landlords do not think they can achieve an Energy Performance Certificate 'C' rating on their properties - a target that is due to be set for them by the Government.
At the moment, buy-to let homes in England and Wales need to have an EPC rating of 'E' or above - but the Government wants to increase the requirement to a 'C' rating for all new tenancies by 2025, and for all existing tenancies by 2028.
With less than four years left until the deadline, new research from lender The Mortgage Works found that 35 per cent of the 750 landlords surveyed were 'not confident' they would be able to meet the target.
A third of landlords are not confident they will be able to upgrade their properties to an EPC 'C' rating. At the moment only 2% of English homes have achieved an 'A' or 'B' +3
This was for a variety of reasons, from the age of their properties, to the cost of carrying out the improvements, to not being clear about exactly what work they needed to do.
However, one in 10 were more optimistic, saying they did not anticipate facing any challenges.
Just 2 per cent of homes in England currently make the A and B grades, while around 85 per cent are either C or D, according to the latest English Housing Survey. Around 13 per cent are rated E, F or G.
Common green home improvements include improving insulation, fitting solar panels and replacing a gas boiler with a more sustainable alternative.
Of the landlords that did think they would struggle to meet the new requirements, 51 per cent said that 'property constraints' would be a challenge.
One of the biggest complaints among both landlords and homeowners when it comes to energy efficiency targets is that older properties may be difficult or impossible to bring up to standard, because they were built in an era when energy efficiency was not a concern.
Victorian homes, for example, were not built with ventilation systems, meaning that the walls absorb moisture easily and modern insulation techniques cannot always be used.
And in period properties with features such as wooden floorboards and high ceilings, energy-sapping draughts may be hard to fully eliminate.
Landlords with larger property portfolios were more likely to face these challenges than those with a smaller number of properties, perhaps because their portfolios were more diverse.
Of those with more than 11 properties, 66 per cent said they were worried about property constraints while that figure fell to 49 per cent for those with 10 or fewer.
Around one in ten of landlords admitted they have no idea of what work was required, but more (41 per cent) had a clear idea of what to do.
Energy efficiency rules 'by far the biggest threat' to landlords
When This is Money covered the new EPC rating targets for buy-to-let earlier this year, many landlords got in touch to tell us they were not planning to bring their properties up to scratch and that instead they wanted to quit buy-to-let.
One portfolio landlord told us: 'Of all the punitive recent legislation and anti-landlord changes, nothing comes close to the impending minimum C rating.
'It is this alone that will cause me to sell my buy-to-let properties, and I suspect a large number of others.
'My properties are old and as such will take a ridiculous amount of money to bring up to a C, even if that were possible, which I suspect it will not be.
'It is by far the biggest threat to the buy-to-let market and it is within plain sight.'
Lack of return on investment more worrying than upfront cost, landlords say
While nearly two thirds of landlords said they would need to spend money to get their properties up to code, a lack of funds to carry out the work was only the tenth most-cited concern among landlords, with 27 per cent stating this as an issue.
The anticipated cost of the work varied widely. More than one in ten (14 per cent) said they would need to spend all of their annual rental income, or even more, on making the improvements to their properties.
However, a larger proportion of landlords did not feel they would need to spend as much with nearly a third having said they would need to spend less than 30 per cent of their annual rental income.
Installing or improving insualation in the roof is one way to improve a property's EPC
Perhaps a more pressing concern was whether they would see an uplift in rents, or other financial benefits, off the back of the money they spent.
Forty-four per cent of landlords were concerned that they would not get a return on their investment, perhaps because the upgrades would have a 'limited tangible benefit to the tenants' (which 35 per cent were worried about) meaning they would not be able to substantially increase the rent.
Daniel Clinton, head of The Mortgage Works, said: 'Given the concerns and challenges facing landlords in not only making the necessary improvements, but financing them, it's perhaps no surprise that more than a third of landlords are not confident they will be able to bring their properties up to the required EPC C standard.'
Businesses in the housing and energy sectors are calling on the Government to pay homeowners to improve their properties and make them greener - something that is rumoured to be under consideration - and Clinton said he hoped similar support would be available for landlords.
'It's great to hear that the Government would like to introduce a new financial support package to help people improve the energy efficiency of their homes, however, we hope that any such scheme would also be open to helping landlords meet their requirements,' he said.
'Green' mortgage products reward those who have energy efficient homes
Other than increasing rents, landlords in the survey who substantially improved their EPC ratings would potentially be able to get more favourable terms on their mortgages.
Several lenders have launched 'green' mortgages in recent months to reward those with an 'A' or 'B' rating - though this is often done by giving them a higher loan-to-value ratio or a fee discount, rather than a cheaper interest rate.
Some also offer green further advance products, which allow landlords to take an extra loan secured on a property in order to make energy efficiency improvements.
This includes The Mortgage Works, which launched its first ever Green Further Advance earlier this year with a rate of 1.49 per cent.
It is available to landlords with an existing TMW mortgage and allows loans of between £2,500 and £15,000 up to a maximum of 75 per cent LTV. Rates for those making green improvements to their property up are to 50 per cent lower than the lender's standard further advance rates.
Landlords have also highlighted the issue of where tenants would stay during extensive retrofits, if the landlord did not want to terminate their tenancy and leave them without a home.
In this survey, access to the property to carry out the work and disruption were both among the top concerns, with each cited by 44 per cent of landlords.
Meanwhile, getting the right people to carry out the work was also an issue. More than a third (34 per cent) said they were worried about finding 'reputable' tradespeople, while 30 per cent were worried about their availability.
The upcoming changed to EPC rating requirements are one of several changes that are making many landlords consider leaving the sector.
The proportion of landlords intending to buy new properties saw a dramatic drop from there, according to the NRLA.
In comparison, the proportion looking to sell up was 20 per cent, up three percentage points from the first quarter of the year.
This was largely due to the aftermath of the pandemic, which saw landlords give rent holidays and reductions. Many believed it would still have a negative impact on their businesses going forward.
Changes to the buy-to-let tax regime in recent years have also encouraged landlords to leave the sector or reduce their portfolios.
They can no longer deduct their mortgage interest from rental income for tax purposes, and they must also pay a 3 per cent stamp duty surcharge on any properties they buy.