What landlords need to know about EPC targets and funding

In July, the new Labour Government confirmed it would be resurrecting plans scrapped by its predecessors which would require landlords to improve the EPC ratings of their rental properties to a C rating or above by 2030. However, with substantial costs associated with upgrading properties, this has been met with some contention from landlords, with our research finding that 78% of landlords are concerned about the new EPC regulations, and a quarter of those feel very concerned.

Whilst a fifth of landlords (21%) have already made some changes to their properties, high costs and the lack of significant Government support risk leaving landlords more squeezed than before.

One of the biggest concerns for landlords regarding EPC targets is the cost. 16% admitted that they would struggle to afford the costs. Much of the UK’s housing stock was built before the 1950s meaning that significant renovations would need to take place to bring the property up to an EPC C rating. In fact, Reapit’s report found that it would cost £24 billion to bring all non-compliant private rental properties up to standard, equating to an average cost of £10,442 per landlord. 

As such, some landlords without the capital ready to invest in their properties are faced with the difficult decision of passing on these costs to their tenants or selling their property altogether, the latter of which was the likely route for a quarter (25%) of landlords surveyed which could have knock-on effects to the rental market which is already seeing increasingly high demand. 

Whilst the cost of improvements is largely consistent nationwide, the impact of having to upgrade properties is disproportionately higher for those landlords with lower-value properties, making a £10k investment far more burdensome in the North than in London.

Despite these high costs, the Government has yet to announce any significant form of support for landlords. So far just three schemes exist: the Great British Insulation Scheme, the Boiler Upgrade Scheme, and the newly announced Warm Homes: Local Grant. 

The Great British Insulation Scheme allows homeowners, landlords, and tenants with the ability to get free or cheaper insulation to reduce energy bills as long as properties have an EPC of D-G and are in Council Tax Bands A-D in England, or A-E in Scotland or Wales. Examples of insulation support include cavity wall insulation, solid wall insulation, loft insulation, flat or pitched roof insulation, and various flooring insulation.

The Boiler Upgrade Scheme allows homeowners and landlords  in England and Wales to get a grant to cover part of the cost of replacing fossil fuel heating systems with a heat pump or biomass boiler. Current grants include £7,500 towards an air source heat pump or a ground source heat pump, and £5,000 towards a biomass boiler. However, this doesn’t extend to most newly built properties, social housing, or a property that’s already been given Government funding or support for a heat pump or biomass boiler.

The Warm Homes: Local Grant is scheduled to be delivered in 2025, and will provide energy performance upgrades and low carbon heating via local authorities in England to low-income privately owned properties  that have an EPC between D and G. This will allow local authorities to install energy performance measures and low carbon heating to eligible homes through measures such as insulation, solar panels, or an air source heat pump. Landlords may receive one home fully funded per landlord with this grant, and a 50% cost contribution will be required for any additional properties upgraded after the first. 

Whilst this move is a positive one, questions still remain over what will happen to landlords not included in these parameters, especially as the total amount of funding available for local authorities to deliver the scheme is still subject to the spending review. This renders it unclear whether there will be enough to actually pay for improvements, and with the deadline just five years away landlords need clarity now. 

This has led several mortgage lenders and prominent voices in the sector to urge the Government for further support in the form of full or partial stamp duty refunds for homebuyers who retrofit their property to achieve an EPC rating of a C or higher. This would help make upgrades more affordable and make these homes more attractive to buyers, and achieve the aim of improving the UK’s energy inefficient housing stock.  

The deadline isn’t the only impetus to improve the energy efficiency of rental properties. Some lenders will factor EPC into their lending decisions and therefore landlords with properties with low EPC ratings may start to struggle to secure a mortgage. In addition, tenant demand for energy efficiencies has been high, particularly as energy bills continue to be high, and landlords that can meet this demand will benefit from increased interest in their properties and lower void periods.

There is also a growing trend of lenders offering ‘green mortgages’ or ‘energy efficient mortgages’ which offer better interest rates or cashback for those with a property that holds an A, B or C EPC rating. At Shawbrook, we offer a discount on the arrangement fee for buy-to-let landlords taking out a new mortgage with us who have a rating of at least a C on their property. Landlords may even be eligible for a partial refund of our arrangement fee if they carry out improvements to their property during the term of their mortgage with us which has resulted in an improved EPC rating. 

Shawbrook also offers bridging loans which are helpful for landlords looking for access to finance to support the cost of retrofitting properties. Our intuitive system allows landlords and brokers to receive an instant application in principle, and we’re able to offer tailored solutions such as higher, 85% LTV for light refurbishments including retro-fitting, the opportunity for interest to be rolled up or paid monthly, no early repayment charges, and the ability to support complex residential property types.

While the challenge may seem significant, landlords should be reassured that there’s still time to make changes to properties. Doing so earlier rather than later also means being able to benefit from the increasing numbers of tenants seeking energy efficient properties. Speaking to a broker, ahead of the government consultation expected before the end of 2024, about concerns regarding EPC ratings will ensure that you’re equipped with all the information needed to make a decision on the future of your portfolio and how you can best fund any improvements.