Investors are increasingly concerned with potential upcoming changes to minimum EPC ratings on rental homes, and this is evident in the behaviours and plans of many landlords.
Although plans to improve rental standards by upping the current minimum energy efficiency standards (MEES) in the private rented sector have yet to be finalised, many property investors and landlords are already trying to get ahead of any changes.
Proposals by the government include increasing the minimum EPC (energy performance certificate) rating to C for rental homes in the coming years. The average score across properties in the UK is currently D, meaning many rental homes could either need to be removed from the sector or need an upgrade to meet new standards.
In research conducted by Rightmove, it seems investors are increasingly keen to futureproof their investments, with almost two third (61%) of respondents saying they would not consider buying a property rated less than C. Just 47% of people made this response last year, showing how the importance of energy efficiency is growing.
More investors selling older properties
Rightmove’s survey also found that a third (33%) of investors who already currently own energy inefficient properties with low EPC scores intend to sell them, as opposed to make improvements to bring them up to a higher standard.
This is an increase from the 20% of respondents last year who said they would rather sell their older rental homes than invest to improve their rating. This could be down to the additional costs involved in carrying out improvement works, or the fact that some properties would still fail to achieve a C rating.
Interestingly, the research also noted an increase in the number of properties that had previously been up for sale but ended up entering the rental market that had an EPC rating of A to C, of 16% since January 2019. By contrast, rental homes previously up for sale that were rated D to G had decreased by 11%.
Awareness surrounding energy efficiency and minimum EPC ratings in the rental sector has improved greatly, according to Rightmove, which could explain the shift in investors’ plans. Now, 80% of landlords say they are aware of the government’s plans, up from just 65% last year.
Different outlook of portfolio landlords
The size of a landlord’s portfolio certainly influences how affected they are by market changes, from interest rate rises to new rental market regulations, including the upcoming EPC changes.
According to Rightmove, more than a quarter (27%) of investors with larger property portfolios – containing five or more properties – intend to invest in more property over the next 12 months. This compares to only 10% of single-property landlords who said the same.
This could be due to the fact that investors with just one rental property are more likely to be ‘accidental landlords’, where they ended up renting out a property due to circumstance, such as inheriting a property, or moving to a new area but being able to keep their original main residence.
However, when it comes to attitudes towards energy efficiency, portfolio landlords may also be more willing to take a risk. A greater number of this investor group are willing to make improvements to properties they currently own with low ratings, or even invest in low-rated properties with a view to improve them.
A new focus for investment
Rightmove’s property expert Tim Bannister says: “Upcoming changes to EPC legislation is a growing concern for landlords, however the data suggests that many are getting ahead and focusing their investment on properties that will meet the new minimum standard and bringing these to the rental market.
“While some may sell up, those with bigger portfolios are more likely to be planning to carry out the necessary improvements to increase the EPC rating of their lower rated homes and are more willing to invest in lower EPC rated properties, potentially to improve for the future.
“This suggests there may be a changing of the guard over the next few years, with landlords with bigger portfolios buying up lower EPC properties being sold by landlords with smaller portfolios, to improve and then rent out again.”
