Rents could rise as landlords consider passing EPC improvement costs onto tenants

• Over half of landlords surveyed said that they will pass on at least some of the costs*
• Tenants in London are most likely to see costs passed onto them
• 23% of landlords will not pass any costs on to their tenants
• Shawbrook Bank launches report considering the impacts that the proposed changes to EPC legislation could have on landlords, tenants and the wider property market

Over half of landlords said that they will pass at least some of the costs that it will take to improve their properties’ energy efficiency rating onto their tenants, according to new report Confronting the EPC Challenge from Shawbrook Bank.

With landlords having to make improvements to their properties ahead of the proposed 2025 deadline, tenants could soon see their rents rise as landlords start to consider how much the required works will cost. When asked how much they believe they would need to spend on making the necessary improvements, landlords estimated that it would cost £5,900 on average to improve their properties.

This figure, however, could be significantly underestimated as landlords who have already made improvements to their properties have spent £8,900 on average to date. Wider market issues such as labour and material shortages could also cause landlords’ final bills to rise.

Tenants in London are most likely to see these costs passed onto them with 68% of landlords in London saying they’d pass at least some of the costs on to their tenants in a bid to recoup the cost of carrying out the improvement works.

Whether landlords put up rents initially or not, many expect them to rise as a natural consequence of the new regulations with nearly a fifth (18%) of landlords expecting this. However, tenants living in energy efficient properties can expect lower energy bills as a result of more energy efficient features within the property such a better insulation, energy-saving appliances, heating controls and energy-efficient windows.   

Emma Cox, Sales Director at Shawbrook Bank, comments:

“Landlords will need to strike an important balance when it comes to making the necessary energy efficiency improvements to their properties. While work needs to be carried out quickly to prevent any void periods during a tenancy, having a clear plan in place as to how they will fund any necessary works is crucial. Our research has shown that landlords may be underestimating the costs involved, leaving them open to unexpected bills.

“As a result, tenants could be caught in the crossfire as landlords seek to recoup some of the costs. While tenants can expect to benefit from cheaper energy bills as a result of greater energy efficiency, any savings on bills could be outweighed by a market wide rent rise in 2025.

“For landlords unaware of the level of work that may be needed on their property, or properties, as well as any associated costs, speaking to a mortgage broker or lender sooner rather than later could help to paint a clearer picture. Understanding when they need to begin works to meet the proposed deadline will allow landlords the opportunity to fully assess their options and funding requirements.

"Landlords have a key part to play in the drive towards a greener future for the UK. While challenges and questions still remain, bringing the wider market together to educate landlords and support tenants during the process will help to mitigate some of the upcoming challenges.

_{*Research Methodology}

_{Shawbrook Bank contracted Opinium to undertake research between 18th and 25th November 2021 to understand landlords awareness of the upcoming changes to the Energy Performance Certification (EPC), which will require properties to be rated ‘C’ or above by 2025 in order to begin a new tenancy. A total 1,000 UK landlords were surveyed.}