British homes old and new green premium EPC ratings

Why EPC ratings are still important in the rental market

Energy efficiency might have been expected to fall down the pecking order of priorities for property investors, but it seems that landlords are still keen to boost their EPC ratings.

When Prime Minister Rishi Sunak announced he was shelving previous plans to increase the energy efficiency of the country’s housing stock, including by increasing minimum energy efficiency standards (MEES) in the UK rental market, some landlords may have breathed a sigh of relief.

Previously, the plan had been to ensure that all privately rented homes in the country were going to have to achieve energy performance certificate (EPC) ratings of at least a C. This was going to mean some major upgrade work would be necessary across a lot of properties to bring them up to standard.

While the legislation has changed, though, it seems that attitudes have taken a different course. This is evident in the latest research from Paragon Bank, which has revealed that almost four in 10 portfolio landlords (37%) are continuing to upgrade their rental properties to EPC ratings of C or above.

Rentals are more energy efficient than owner-occupied

Interestingly, government data also shows that homes in the private rented sector are actually more energy efficient than owner-occupied homes. The English Housing Survey revealing that 44.9% of PRS properties have EPC ratings of A-C, while only 43.3% of properties lived in by homeowners have the same.

This could be an indication that not only are today’s buy-to-let landlords continuing to carry out upgrade work to improve the energy credentials of their homes, but also that buy-to-let investors are more likely to invest in a new-build to rent out.

New-builds represent the most energy efficient housing stock, as the vast majority of today’s newly built housing stock achieves the highest EPC ratings. There are multiple benefits to investing in a new-build, particularly off-plan as this can ensure better capital gains.

Paragon’s research found that 32% of portfolio landlords operating in the UK exclusively hold properties rated C or above. As an investment strategy, this may mean higher rents due to the properties being more desirable to tenants, with lower energy bills being a major selling point in the current climate.

Achieving the best EPC ratings

There are multiple benefits to rental properties having high EPC ratings, including the fact that tenants are prioritising more energy efficient homes more than ever, and this remains a focus for many property investors.

Newer, more energy efficient properties can also prove to be much more future-proof, as they will be less likely to incur repair and maintenance costs compared with older, more draughty homes. This can save the owner money over the long run, despite the potential higher outlay initially.

They can also command higher rents for tenants compared with older homes with low ratings, which again can have long-term benefits in terms of rental yields.

According to Paragon Bank, there was a wide variation of timescales for those landlords that were doing work to improve their EPC ratings. Almost a third (28%) expect to reach EPC ratings of C across their portfolios within one to two years, while 22% thought it would take three to four years.

This was followed by 18% who expect to finish green upgrades within the next 12 months and a similar proportion, 17%, who feel it will take them five years or more to hit the previously mooted targets.

Focus on stability

Richard Rowntree, Managing Director of Mortgages at Paragon Bank, said: “It’s encouraging to see portfolio landlords continuing to enhance their properties so they meet EPC C or higher, despite the proposed regulations being shelved.

“These landlords will join almost a third more who have carried out sustainability focused upgrades or purchased property already benefitting from energy saving technology, highlighting the commitment amongst portfolio landlords to improve the standard of privately rented homes for tenants.”

Louisa Sedgwick, Paragon Bank Commercial Director of Mortgages, added: “We often see landlords release capital from existing properties in their portfolio to fund expansion or property upgrades. With mortgages rates lower than last year, we are seeing increased interest in remortgaging across the market to support landlord growth ambitions.”

If you’re looking for your next energy efficient property investment opportunity, get in touch with BuyAssociation today to see how our consultants can help you. 

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