All rental properties in the UK must now meet minimum energy efficiency standards (MEES) to operate legally. But when the bar is raised in 2025, thousands of landlords could be left behind.
As part of a crackdown on poorly kept rental homes and in a drive to tackle some of the country’s environmental issues, last year the government introduced a minimum EPC that must be reached on all privately rented properties. At present, all homes must achieve at least a band ‘E’ rating.
However, from 2025, the government wants to raise this target to a rating of ‘C’. At present, only around 2% of homes – both owned and rented – achieve an A or B rating, and 85% score in the C or D category. This means there is a lot to be done to meet the proposed standard in the next four years.
New-builds score top for energy efficiency
According to commentary from David Smith, real estate partner at JMW Solicitors, only new-builds or heavily upgraded properties are likely to reach band C by the 2025 target date.
“This will be a big change,” he says. “Moving to band E only affected around 200,000 of the least efficient properties based on government figures. Moving to a band C will affect well over two million properties, approaching half the buy-to-let sector depending on whose figures you prefer.
“The approach taken by the Department for Business, Energy & Industrial Strategy in their proposal is difficult to understand as it fails to take into consideration the reality of properties in the UK.”
Landlords and property investors most able to keep up with the new requirements are likely to be those who invest in cities and towns, in either newly built or newly refurbished properties. This is because there is a greater concentration of older properties in more rural areas, whereas urban areas are constantly benefiting from new, modern homes being built.
Tenants and investors drawn to new homes
While newer properties generally come at higher price points compared to older ones, there is normally more value to be had. With the EPC upgrade in mind, investing in a home that already meets the future minimum requirements means a lot less hassle down the line in making upgrades and improvements.
From a tenant’s perspective, a more energy efficient home means savings as well as environmental benefits. Lower energy bills and a less draughty, warmer home are attractive qualities for renters, even if the rent is slightly higher than in an older property.
For landlords who already own properties with low energy efficiency, there may be big costs ahead. A survey earlier this year by The Mortgage Works found that 35% of 750 landlords were “not confident” they could reach an EPC rating of C in their properties.
What landlords need to do
For homes that don’t meet the current standard of grade E or above, landlords must take action either immediately if the property is tenanted, or before a new tenant moves in if it is empty. There is a cost cap of £3,500, meaning landlords will never need to spend more than this to meet the standard.
There are a number of measures the government recommends to improve an EPC rating. This includes room-in-roof insulation, internal or external wall insulation, solid floor insulation, which are all high cost improvements.
On a more simple, cheaper level, landlords can increase hot water cylinder insulation, or add draught proofing and low-energy lighting. While these are smaller measures, they will still have an impact on the energy efficiency of a property.
David Smith adds: “There are some new-build properties which do not meet the new requirement of a band C EPC and older properties which will never be able to meet it, regardless of the owners’ best efforts and intentions.”