Government Announces EPC U-Turn

Hello readers,

Following the introduction of the mandatory EPC Band E, which was introduced on 1st April 2018 for domestic and commercial rental properties, I have recently been reading about a consultation regarding bringing the minimum rating to an EPC Band C by 2030.

Whilst I know you will certainly agree that promoting energy efficiency is a positive thing to do, it is concerning that, once again, it appears to be landlords who will be required to foot the bill for improvements to properties including, ironically, ex-council houses!

Furthermore, with most properties in Medway being Victorian or older, it is unlikely that they can be brought up to Grade C without significant cost. This could lead to a mass sell-off of rental properties as landlords choose to cash in and invest elsewhere.

What is Proposed?

The Government entered consultation on 30th September 2020 and is inviting comments with a closing date of 30th December 2020. You can read the full proposal here.

The consultation states that “The government has committed to upgrade as many private rented sector homes as possible to Energy Performance Certificate (EPC) Band C by 2030, where practical, cost-effective and affordable.”

It goes on to outline a target to lift the minimum EPC for all privately rented homes to Band C for new tenancies from 2025 and all existing tenancies from 2028.

There is an alternative proposal that would place a requirement on landlords to reach a dual metric target of both EPC B and C cost metric, along with the environmental impact rating (EIR) B and C carbon metric during the 2030s.

The proposals outline a substantial penalty of up to £30,000 which can be levied by the Local Authority against landlords who do not comply. The proposals also include a recommendation for agents and portals to be banned from listing properties that do not meet these standards.

Following the consultation, a Government response will be published in Spring 2021 with regulations laid out in Autumn 2021.

What is the Impact for Landlords?

The Government proposal claims that this will bring ‘significant benefits to landlords…’ as it will reduce energy bills, deliver carbon emission savings, and lead to ‘potential property value improvements…’.

How positive to hear that the Government is so kind as to consider benefits to landlords (!).

Unfortunately, contrary to this sentiment of empathy with landlords, the actual impact for landlords will be yet another increase in cost.

The proposal appears to outline that there is a cost cap of £10,000 per property for improvements with the alternative proposal having an increased cost cap of £15,000 cost cap per property.

When reading into the proposals, I particularly resonated with a comment from Timothy Douglas, Policy and Campaigns Manager for ARLA Propertymark, who said: “On the face of it these proposals simply do not take into account the state of the UK’s housing stock.”

“We all want to see more energy-efficient homes, but the new rules and requirements must be realistic and achievable. Landlords and their letting agents are already taking the brunt of tax changes and many are providing support to tenants with COVID-related arrears.”

“A simplified exemptions regime and additional financial support must be made available otherwise the measures in their current form, will not be achievable and that would mean further reductions in the supply of rented accommodation available.”

My recommendation is for landlords to make the most of the Green Homes Grant and assess their properties whilst the funding is available. If funding is not available for these improvements, it would not surprise me if we simply see this added cost passed onto tenants in the way of rent increases such as we saw when the tenant fees ban came into force.

Landlords have been treated with contempt during the Covid-19 pandemic, and this recent proposal just comes across as another way of penalising good landlords. It also highlights the importance of liquidity and not over-leveraging as many investors I speak with are now needing to build up additional reserves.

I would be interested to hear your thoughts on these proposals and would certainly recommend you give your formal feedback on the proposal. Whilst I completely agree that more energy-efficient properties are a good thing, the funding of works needs to be better outlined and I will certainly be putting forward my perspective on that point!

As usual, you are welcome to get in touch with me via LinkedIn and I will be happy to answer any questions that you may have.

Hasan

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