New EPC legislation: what does it mean for Buy to Let landlords?
While proposed changes to Buy to Let (BTL) green legislation may cause landlords to rush into selling off low quality EPC stock, improving the energy efficiency of their existing rentals may in fact be a better option. Paul Braithwaite, Commercial Development Lead at Leeds Building Society, shares his thoughts.
Under proposed changes to BTL Energy Performance Certificate (EPC) legislation, and in line with its net zero strategy, the government wants BTL landlords in England and Wales to ensure their rental properties have a minimum EPC level of C by 2025.
It’s not hard to see why the government wants landlords, and eventually all homeowners, to bring their properties up to minimum standards of energy efficiency.
Transition to net zero
The UK has the oldest housing stock in Europe, with around one in five homes failing to meet the government’s definition of a ‘decent home’. UK homes lose heat up to three times faster than energy-efficient homes in countries like Germany, and the UK housing stock contributes around 16% of all UK carbon emissions.
Asking BTL landlords to do their bit, then, makes sense. Yet at present, in England only 42% of assessed homes currently reach C or above, whilst in Wales the figure is just over a third (37%).
What’s more, despite making these ambitions public, the legislation proposed initially for the private rental sector has yet to be passed. This delay, against a backdrop of record-breaking temperatures, energy price rises and political uncertainty means there has been little incentive to kick-start the retrofit revolution required to help realise a net zero future.
To sell or not to sell?
Landlords looking at the new proposals are likely to be weighing up if the cost to improve their properties is worth it – or whether selling off problematic properties before the legislation comes into force is actually a better option.
Data suggests they’re opting for the latter. Around 70% of landlords sold rental homes rated EPC D to G in the last three months, with 53% purchasing an A-C rated property.
The proposed EPC legislation, then, has instead caused a scramble for already good EPC rated property. But is this the most pragmatic approach?
Benefits of retrofitting
Whilst in the short-term selling and replacing stock might be the easiest approach, landlords selling off properties does not solve the issue of net zero and the need for retrofit of existing UK housing stock.
In the medium to longer term, particularly as higher EPC properties are attracting more of a premium (research shows upgrading from an F to a C EPC rating can add 16% on average to the price of a property), retrofitting lower EPC rentals could become the most economical option again. This is especially so considering the proposed £10,000 price cap for EPC improvements (up from £3,500).
How can landlords lead the way?
There are many things that landlords can do which will not only save them money but will also make their rentals more energy efficient. These could range from small but impactful improvements, right through to big retrofit projects.
Landlords can act now by reviewing and getting advice on how to improve the EPC of their properties, as well as lining up the capital needed to do any work required. The Energy Saving Trust has a useful energy efficiency guide for landlords.
And what can lenders do?
Lenders have a great opportunity to support landlords where they decide to complete improvements to the energy efficiency of their property.
Lenders need to be ready to help support and educate landlords on energy efficiency upgrades so they can provide capital for landlords that have additional borrowing needs. Lenders must also look to innovate with new products and propositions, such as ‘lend to improve’ offerings.
Support landlords ‘every step of the way’
Lenders can’t shy away from the challenge of net zero. Instead, we need to educate landlords on the benefits of improved energy efficiency to not only the environment, but also to the living standards of their tenants and ultimately the benefits to themselves of having desirable, energy efficient properties to let.
Whatever the choice, we need to be there to support landlords every step of the way and leave no-one behind as we transition to a net zero future.
Leeds Building Society is now looking at how best to support landlords through education, as well as through offering appropriate products and services and doing the right thing to reduce our carbon footprint. We’ve taken significant steps in working towards net zero as a business, we’ve launched mortgages that incentivise greener homes and are continuing to look at ways we can reduce our impact on the environment.
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 BVA/BDRC Landlords Panel Research Report, July 2022