You will undoubtedly have heard about forthcoming changes to EPC legislation in England as the country aims to reduce carbon emissions across the board.
I certainly agree that aiming to go green is a good thing, but there is a lot of confusion and significant concern amongst property investors about what this will mean for them.
I’ve been reading a lot of headlines that state things like ‘all rental properties to have an EPC rating of C by 2028’, ‘Mandatory EPC rating of C by 2025 for all rental properties’ etc. I’ve even been reading articles from reputable outlets such as Landlord Today which state that:
“From 2025 all newly rented properties must have an EPC rating of at least ‘C’. This deadline is extended to 2028 for existing tenancies.”
I previously wrote about these changes in a blog back in October 2020 and they really do seem to be of concern to landlords. However, here’s the thing… despite all the headlines, these changes have not yet come into effect. They are just proposals at the moment, with a bill going through the strange walls of our parliament.
Where Are We Now?
At present, rental properties in England need to have a minimum EPC rating of E and this came into effect in 2008. So, these new proposals are, in effect, a U-turn.
According to Government data, only 42% of existing properties in the UK are rated EPC C or above, with the large majority (41%) being EPC D. You will see how most new build dwellings are rated EPC B or above.
Here’s the thing, however… carbon emissions from homes in the UK make up just 15% of the total emissions according to a 2019 Government report. Here’s the next whopper of a statistic for you: 18.7% of homes are privately rented and this means that the private rental sector only makes up around 2.8% of all carbon emissions!
So, why target landlords (only) and not all properties?!
Ok, so remember things are currently just proposals and not set out in law. Here’s what the bill proposes:
The Secretary of State must amend the Energy Efficiency (Private Rented 15 Property) (England and Wales) Regulations 2015 (SI 2015/962) to require that, subject to subsection (2)
- all new tenancies must have an energy efficiency performance of at least EPC Band C from 31 December 2025; and
- all existing tenancies must be at least EPC Band C from 31 December 20 2028 where practical, cost-effective and affordable as defined under section 1(4).
There’s a sting in the tail, however, as reading the proposals outline how there is the possibility of EPC rating B being made mandatory as a next step!
Review Of The EPC System
I thought that this would be a good time to pop in a note about EPCs in general. You can read the full proposals here, but the main headlines are that the review aims to deliver:
- An EPC system that produces accurate, reliable, and trusted EPCs
- An EPC that engages consumers and supports policies to drive action
- A data infrastructure fit for the future of EPCs
This does make you think that current EPC change proposals for the private rented sector (if and when they happen) could either look very different in practice or quickly be superseded!
What Will Landlords Need To Do?
Quite simply put, if proposals come into law all landlords will need to comply or face a potential fine of £30,000. Reading through a number of articles, I understand that the average cost per property to upgrade is around £10,000!
My recommendation would be to get an updated EPC first as one investor I know purchased a property that was EPC rated E and, on the reinspection, it was upgraded to a D. This could save you quite a lot of money right off the bat!
I would recommend then discussing the improvements which would make the necessary improvements with your EPC assessor and putting in a schedule of works, then getting the same assessor to revisit.
There is a warning here as some of the recommended changes could end up causing your rating to go down or stay the same!
What Should Landlords Be Doing Now?
I hear you… 2025… £10k cost… nothing yet confirmed… failed Green Homes Grant Scheme which landlords struggled to get access to… a review of the EPC system. It all seems like a bit of a pipe dream, doesn’t it?
My recommendation is for landlords to estimate the funds they will require and make sure they have them available should the changes come into force (perhaps ringfencing and investing them elsewhere for a short period).
I certainly don’t recommend making changes until you have to, however having this in mind when purchasing a property is wise. I’ve seen how properties below an EPC D for example, do seem to be marketed for less, and also some lenders reducing their LTV or giving higher rates for properties rated below a C.
If the past two years have taught us anything, it should certainly be to expect the unexpected.
In addition to this, I struggle to see how, considering the current housing stock, the targets will be realistic. We have a housing crisis in the UK and with landlords taking the brunt of tax changes, COVID-related arrears, and delays to the court system, it is simply completely unreasonable to increase this burden.
Heat pumps have been paraded as the solution; however, they are expensive and inefficient with older properties (such as Medway’s Victorian stock). In addition, if the 2025 target is to be met, the Government had better get a move on and make up its mind as I can see a huge lack of availability of companies to make the improvements and inflated prices potentially coming to smack us in the face.
Basically, I see no way that a 2025 target can reasonably be met whilst keeping rents as they are and without additional financial support and implementation forethought. I’d be keen to hear what you think – the best way to get in touch is via LinkedIn.