With the current economic uncertainty in the UK, it is a good time for landlords in England and Wales to focus on optimising their existing property portfolios and making sure their properties have as much longevity as possible.
Ensuring that all of your properties’ Energy Performance Certificate (EPC) ratings are as high as possible is a perfect example of what can be done now to get ready for potential future regulation as well as take advantage of current benefits of having a high EPC rating.
What are Energy Performance Certificates?
Energy Performance Certificates (EPCs) are needed whenever a property is built, sold, or rented. You must order an EPC for potential buyers and tenants before you market your property to sell or rent.
An EPC contains:
- Information about a property’s energy use and typical energy costs.
- Recommendations about how to reduce energy use and save money.
An EPC gives a property an energy efficiency rating from A (most efficient) to G (least efficient) and is valid for 10 years.
Potential future regulation: Government push to increase the energy efficiency of UK properties
Since April 2018, landlords of privately rented domestic and non-domestic properties in England or Wales have had to ensure that their properties reach at least an Energy Performance Certificate (EPC) rating of E before granting a new tenancy to new or existing tenants.
Since 2020, these requirements have applied to all private rented properties in England and Wales for domestic properties and will apply from 1 April 2023 for non-domestic properties as well – even where there has been no change in tenancy arrangements
Now, the government wants to improve the energy ratings of the UK’s housing stock further to reduce the contributions housing makes to the country’s carbon emissions. The UK government sees the improvement of EPC ratings as playing an important role in achieving its goal of net zero carbon emissions by 2050. It is also a move that will help tenants with high energy costs during the current cost of living crisis.
The challenge is that UK has some of the oldest housing stock in Europe and is notoriously “leaky” when it comes to insulation and energy efficiency. Currently, the Minimum Energy Performance of Buildings (No.2) Bill is going through parliament. This bill requires the minimum threshold to be raised to an EPC rating of C in the coming years. The bill states:
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)—
(a) all new tenancies must have an energy efficiency performance of at least EPC Band C from 31 December 2025; and
(b) 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).
This bill is not yet law, but it is worth landlords being aware of as there is a clear direction of travel to more stringent energy efficiency standards.
Current benefits: Lender bonuses for properties with higher EPC ratings
The property industry is making strides toward improved awareness of forthcoming potential tougher EPC requirements. In line with this, some lenders are offering mortgage and bridging discounts linked to EPC improvements.
For example, Shawbrook Bank is offering new Buy-to-Let mortgage customers an Energy Efficiency Discount, or partial refund, of up to 60bps on their arrangement fee where their property’s Energy Performance Certificate (EPC) rating is ‘A’, ‘B’ or ‘C’.
New customers will be able to obtain the Energy Efficiency Discount on their arrangement fee when an EPC is produced confirming the property’s rating of ‘C’ or above.
For new mortgages on properties where the EPC rating improves to at least a ‘C’ during the mortgage term, customers can apply for a partial refund of their arrangement fee, plus the cost of the new certificate (up to £100). See their press release for more information.
This is in addition to loyalty discounts they already offer.
As other lenders follow suit, there will be tangible financial benefits to landlords improving their EPC ratings.
Landlords should take this opportunity to improve their properties’ EPC ratings as much as they can. Not only is it the right thing to do in a time of higher energy costs for tenants, but there are financial advantages and if landlords do not proactively do this work, they may be forced to by the government soon.
As a first step, landlords should check the EPC ratings of their properties and consider if a new assessment is required and see what improvements could be made.
If you would like some advice on how to improve your EPC rating on your properties, read our blog, Five top tips to help you improve your energy performance rating.