Landlords investing in new-build properties are set to benefit from a perfect storm of regulatory changes that will leave older rental stock struggling to compete.
The rental sector is currently going through its biggest shake-up in decades, with the Renters’ Rights Bill expected to become law in late 2025. It will bring in sweeping changes, including the end of Section 21 evictions and higher property standards. At the same time, energy efficiency requirements are also being tightened, with all new rental properties required to achieve EPC Band C by 2028 and existing ones by 2030.
For BTL investors, there is a clear divide developing between modern, compliant new-builds and older properties that will require expensive upgrades to meet the new standards.
Compliance mountain for older properties
And the scale of the challenge for older properties is significant. Government data shows that over 60% of rental properties in England and Wales currently have EPC ratings below the proposed minimum B and C bands.
But there are some stark regional variations. While 60% of London rentals are rated EPC D or below, that figure jumps to 70% in Wales and 69% in Yorkshire and the Humber.
The Decent Homes Standard, which requires homes to be in good repair and have modern facilities, is likely to produce similar hurdles, with research revealing 21% of private rental homes in England fall below the upcoming mandatory thresholds.
Government estimates suggest landlords will need to invest between £6,100 and £6,800 per property to achieve EPC Band C, with costs potentially reaching as high as £15,000 per property. For the Decent Homes Standard, the median upgrade cost for private rental properties will be £8,381.
Many landlords, though, are underestimating these costs and research from lettings software firm Goodlord suggests that most are only willing to spend an average of £2,400 to meet EPC B and C requirements.
Tougher penalties
To ensure compliance with the new rules, fines for EPC breaches are on the rise. Although they are currently capped at £5,000 per property, they could climb as high as £30,000 per property by 2030.
In addition, under the Renters’ Rights Bill, local authorities will get enhanced enforcement powers and the ability to issue civil penalties of up to £7,000 for minor breaches and £40,000 for repeat offenders.
New-build advantage
It is, though, good news for new-builds. CBRE analysis shows that over the last decade, 95% of new homes have been issued with EPC ratings of C or better. This means investors purchasing new-build properties can sidestep the substantial upgrade costs and compliance headaches that owners of older stock are facing.
New-builds also meet modern building standards that align with the proposed Decent Homes Standard requirements. They feature modern heating systems with programmable controls, effective insulation and double glazing, up-to-date electrical systems, proper ventilation and damp prevention measures, and contemporary kitchens and bathrooms that meet age requirements.
Research by the Home Builders Federation also shows new houses and flats save occupiers an average of £435 each year on energy bills compared to older properties. About 84% of new-builds are rated A or B for energy efficiency, while only 3% of existing properties meet that standard.
Market shifts in favour of new-builds
The regulatory changes are therefore likely to create significant shifts in the market that will benefit new-build investors. Hamptons’ research, for example, indicates that at current improvement rates, it would take until 2042 for all rental homes to meet new standards. The government target requires 340,000 rental homes per year to achieve EPC Band C by 2030 – an 143% increase in annual improvements.
This massive shortfall means many existing properties will struggle to compete. Properties that cannot achieve compliance face being withdrawn from the rental market entirely, reducing available stock and driving up rents for those properties that are left.
Rental premiums
Tenant preferences are also shifting. Rightmove data shows that 68% of renters prefer energy-efficient properties. Compliant homes can command higher rents while attracting better-quality tenants who value lower running costs.
Research suggests tenants may accept rent increases of £50-70 per month for properties that save £300 annually in energy costs. This creates a direct path to higher yields for compliant properties while also reducing void periods as energy-efficient homes let more quickly.
Time to position portfolios
With implementation timelines likely to stretch to 2030 for energy efficiency and potentially 2035-2037 for Decent Homes Standards, there is time for investors to prepare for the changes. Those who have chosen to invest in new-builds, though, will be sitting considerably more comfortably, and when the new rules come in, it is likely to improve their yields, too.
