The government’s Plan for Change strategy means landlords have until 2030 to ensure their rental properties achieve a minimum EPC rating of C.
In 2023, former Prime Minister Rishi Sunak scrapped the proposal to force landlords to improve their properties’ energy efficiency. However, the new Labour government revived the idea and has now confirmed a deadline.
As a result, by 2030, all rented homes will need to achieve a rating of C on their Energy Performance Certificate (EPC). This is a significant increase on the current minimum, which is an E rating. It means that properties falling below this benchmark by the deadline could be deemed unrentable. Fines could also be issued to landlords.
What is an EPC?
An EPC illustrates a property’s overall energy efficiency. Its ratings are given on a sliding scale, with A being the highest and G being the lowest.
These ratings are issued based on the amount of energy used by the property and the amount of CO2 produced.
Many factors can affect the rating of a building. For instance, the property’s type and construction date. As a rule, newer homes are more energy efficient, as are flats and terraced homes.
According to the 2023 Energy efficiency of housing in England and Wales report by the Office for National Statistics (ONS), English and Welsh properties have a median energy efficiency rating of D. Research by Reapit has also revealed that less than half of privately rented homes in England, Wales and Scotland have an EPC of C or above. This means around 2.7 million homes would need to be upgraded by landlords in order to achieve the new minimum standard.
The cost to landlords
To boost a property’s EPC rating, landlords can do several things, including installing insulation, upgrading heating systems or fitting renewable energy solutions.
However, these changes come with a cost, a figure that has inflated in recent years due to rising prices for materials and labour.
As a result, many landlords are concerned about how much they will need to pay to make improvements. Indeed, a 2023 survey by Simply Business of nearly 1,500 landlords found that 18% expected energy efficiency improvements to cost them over £10,000. Another 25% anticipated it to cost between £5,000 and £10,000.
Landlords who rent out larger, detached properties are likely to have the most significant costs. Analysis carried out by mortgage broker Habito found that this property type could result in improvement costs of around £12,540 per building.
These costs will, of course, be even higher for landlords who own multiple properties.
Landlords are also concerned about the shortness of the timeframe for the updates. In Rightmove’s 2024 Greener Homes Report, 50% of landlords questioned said that they were anxious about being fined if they failed to meet the deadline.
This is leading some landlords to consider their future in the rental sector: “The costs landlords are facing to bring EPC ratings up to the mark is bringing the viability of ownership as an investment into question,” commented Oliver Prior, National Commercial Director of Auction House. “Those who are already highly leveraged and have been squeezed by the increase in mortgage rates over recent years and the change in Stamp Duty are likely to be the most impacted.”
What happens next?
The original Conservative proposal set a maximum spending cap of £10,000 per property, but the government has now chosen to increase this to £15,000.
Now that the requirement for an EPC of C has been confirmed, landlords could benefit by being proactive and beginning to implement change as early as possible.
Properties with better EPC ratings can make them much more appealing to renters, allowing you to charger higher rates. There are already signs that high energy costs are prompting tenants to be choosier, something that you could capitalise on if you upgrade now.
Investors are also more likely to be interested in your higher-rated property should you choose to sell. Newer builds and those that have already been upgraded have been shown to gain more interest.
If upgrading isn’t cost-effective, landlords may choose to exit the market sooner rather than later. In these cases, auctioning the property can be a great option. “Vendors can sell their properties with tenants in situ, which means they will benefit from the rental income up until completion, in addition to taking advantage of the security and speed of sale under the hammer,” explains Oliver Prior.
Take a look at our upcoming auctions
If you’re looking for your next energy efficient investment, or a property that has plenty of potential for upgrades, take a look at our upcoming auctions.
Alternatively, if you’re thinking of selling your buy-to-let property, you can book a free valuation today.
