The EPC Challenge Facing Buy To Let

The EPC Challenge Facing Buy To Let In 2015 the government introduced the Minimum Energy Efficiency Standard (MEES) requiring landlords to ensure that by 2025 all newly rented properties reach an Energy Performance Certificate (EPC) rating of C or above. This will extend to all rental properties by 2028. The big question is around how […]

March 15th, 2022

The EPC Challenge Facing Buy To Let

In 2015 the government introduced the Minimum Energy Efficiency Standard (MEES) requiring landlords to ensure that by 2025 all newly rented properties reach an Energy Performance Certificate (EPC) rating of C or above. This will extend to all rental properties by 2028.

The big question is around how this will impact on landlords and what they need to be doing

The Impact of EPC Changes

Let’s look at some of the numbers:

15% of private landlords admit to having minimal knowledge of the proposed changes to EPC rules and are unaware of the 2025 deadline
More than 1 in 4 landlords had no knowledge of the changes. Moreover, long term landlords (those operating for over 10 years) were the least likely to know anything about the changes

So, we have an awareness issue.

Across the UK, most houses were built between 1950 and 1990. This means that the majority of housing stock will not have been built with energy efficiency front of mind
23% of landlords knew their properties had an EPC rating below ‘D’
25% of landlords didn’t know what their EPC ratings were

So, we have a volume issue.

The estimated spend per property to bring up to the required standard is £5,900 per property
22% of landlords had no idea what the cost to them would be
31% of landlords thought they would be able to fund the costs
14% thought they may be able to just about afford it
55% remain unaccounted for and either don’t think they can afford it or have not yet considered the cost

So, we have a cost issue.

There is a risk here we are heading for a perfect storm.

The Mortgage Issue

Two things. We are seeing buy to let lenders offer better deals to energy efficient properties, this is good news and starts to bring the EPC issue to the forefront in the thinking process for landlords.
The second issue is more concerning. With the majority of buy to let mortgages on five year deals, when these expire there will be a requirement for the properties to be EPC compliant to be let, therefore for mortgage affordability works will need to be completed for a remortgage to happen.

This means delays in remortgaging or releasing capital from current property stocks and borrowers moving to lender standard variable rate borrowing. Higher borrowing costs at a time when spend needs to happen to bring the property to EPC standards.

Perfect storm.

As well as awareness, the key may be for landlords to address the issue before the end of 2023. Where buy to let mortgages are expiring then:

Consider the cost of bringing the property to EPC standards now
Use the remortgage time to allow for the cost
Raise the finance before the new standards kick in
Rent, gain the income and move on

This is all about acting earlier and getting the message across. No need to panic but do nothing and in three years landlords may be phoning Houston to advise of a problem. If you want to get ahead of the game then give me a bell.

By Dave Farmer

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Figures from Shawbrook EPC report 2022

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.