By the end of the decade, the government wants all rental homes to hit higher EPC targets, presenting a conundrum for property investors and landlords.
The government’s proposal to boost standards in the private rented sector includes ensuring that all privately rented homes in England and Wales achieve an energy performance certificate (EPC) rating of C or higher by 2030.
An EPC is a document provided after a professional inspection of a property that assesses its energy efficiency. It gives the property a rating between A and G (A being the most energy efficient), while identifying ways of improving the rating and potential costs. In England, the average rating across properties is a D.
All rental properties must have a valid EPC which the tenant can access. They expire after 10 years, at which point a new assessment must be carried out, although owners can get a new EPC rating issued earlier than that, such as if they carry out work on the property that improves its energy efficiency.
For a home to be legally rented out currently, it must achieve a rating of at least an E, but the government’s plans will outlaw any home rated D or E from being let out, unless the property is registered exempt.
At the moment, the proposal is under consultation, which closes on 2nd May.
Property investors reassessing portfolios
Some homes, particularly very old properties, will never achieve the minimum standard to be let out. In order to rent out the property, the owner must prove they have spent up to a certain amount on upgrading the home, and can then apply for an exemption.
However, as more and more homes achieve better energy efficiency standards, while energy bills also remain significantly higher than they were three years ago, tenants are increasingly prioritising the EPC ratings of rental properties. For this reason, research shows that property investors are also more likely to favour a higher rated property, particularly in light of the upcoming potential changes.
At the moment, an estimated 2.5 million rental homes are rated between D and G, meaning they don’t achieve the future minimum requirement. These homes will either need to be retrofitted, or are likely to be sold and removed from the rental market.
At the same time, property investors reassessing their portfolios may choose to sell energy inefficient homes and invest in new-build properties, the majority of which achieve the top EPC ratings of A or B. This will ensure compliance in 2030.
According to the National Residential Landlords Association (NRLA), landlords could face upgrade costs of up to £15,000 if they are looking at retrofitting their existing properties to get them up to a C rating.
Chris Norris, the NRLA’s policy director, said: “Even if the improvements were fully funded and upgrades started tomorrow, we still don’t have the tradespeople to carry out the work.”
He added: “Pulling thousands, if not tens of thousands of homes from the rental market if they failed to hit the 2030 deadline would have a devastating impact on supply and affordability for tenants – the very people this legislation wants to support, so it is clear more work is needed on these timelines.”
New-build incentives
For homeowners, energy efficiency is one of the top incentives for buying a new-build, as it can save thousands of pounds every year on energy bills. Similarly for property investors, a top EPC rating can be an excellent tool for attracting tenants to a high-standard property.
Buying a new-build often comes with additional plus points, including the 10-year new-build warranty, additional on-site amenities for apartments, and better build standards. Being able to adapt and personalise a property before its built, such as choosing decor and selecting the best unit or plot, are also appealing to many buyers.
Property investors looking to maximise their potential returns can also look at investing off-plan, where you pay for the property before construction is complete. This can secure a much better price than buying after completion, while again allowing more control over the final finish of the property where this is an option.
From an energy efficiency perspective, ONS data shows that 85% of new-build homes achieve an A or B rating in their EPC. By contrast, less than 4% of existing homes reach the same standard. New-build flats in particular tend to have higher energy efficiency standards, and these are particularly sought after by property investors in city centre locations.
Property investors seeking a future-proof investment with a top EPC rating should contact BuyAssociation today to learn more about our current and upcoming projects across the UK.
