Despite the government's decision to scrap the proposed EPC legislation targets for rental properties set for 2025, landlords are still prioritising EPC rating improvements.
Finbri’s 2024 survey of 755 UK landlords found that over 70% plan to carry out EPC improvements on their rental properties this year, an increase from the 68% that intended to undertake energy efficiency improvements in 2023.
Since 2015, laws in England and Wales have required private rental properties to meet an EPC rating of E or higher. The rating was slated to rise in 2025 when all rented properties would have to meet a minimum EPC rating of C, but the government has moved the goalposts to 2028.
The 2024 Landlord survey found that 77% of landlords consider the EPC rating important when looking for investment properties, and 70% believe the ratings are important to their tenants.
Georgia Galloway, from Finbri, comments: “Our survey found that landlords continue improving their properties to improve EPC standards despite the delay in proposed regulations.
With 60% of landlords having already completed EPC improvements in 2023, it's evident that they are further undertaking energy-efficient investments.
"This underscores their dedication to improving their rental properties and/or pre-emptively mitigating the potential impact of government changes.”
What are the current EPC guidelines and proposed changes?
An Energy Performance Certificate (EPC) identifies how energy-efficient a property is. It uses a rating system from A to G, with A being the most efficient and G the least. This rating helps potential buyers or tenants understand a property's energy efficiency. The current guidelines for residential landlords are as follows:
Landlords must ensure their residential properties possess a valid EPC, certifying a minimum energy efficiency rating of E per the MEES regulations. Moreover, landlords cannot issue a Section 21 notice unless a valid EPC has been provided to the tenant beforehand.
By 2028, rental properties must have an EPC rating of C or above.
Ways landlords can increase their EPC rating
Finbri found 11 key methods to boost a property's EPC rating, reducing energy expenses. With over 70% of landlords looking to complete EPC improvements this year, here are the most effective ways of increasing the energy efficiency of a property:
- Insulate hot water cylinders
- Insulate walls
- Install roof or loft insulation
- Draftproofing
- Upgrade to double or triple-glazed windows
- Upgrade gas boilers
- Switch to LED lighting
- Install smart heating controls
- Switch to energy-efficient appliances
- Switch to renewable energy systems
- Install green roofs or walls
Landlords can ensure their properties comply with regulations and enhance energy efficiency through necessary improvements. This benefits tenants and landlords by saving on energy bills and contributing positively to the environment.
Despite the targets changing, most landlords believe a future government will re-introduce EPC targets. Even with the recent government decision to scrap mandatory EPC targets for rental properties, landlords are far from convinced that this is the end of the story.
With a general election to be held before January 2025, 75% of landlords believe the legislation would be reintroduced by a new government. Labour has pledged its support for various green energy initiatives, and the shadow secretary for climate change, Ed Miliband, who advocates for minimum EPC ratings, also says he’s ‘in favour’ of rental properties meeting a minimum EPC C rating.
How can EPC improvements be funded?
With most UK landlords managing two or more rental properties, the expenses for increasing energy efficiency across their portfolio can be substantial. Here are various financing options for landlords looking to upgrade their EPC ratings:
Using Cash Reserves: Landlords can use their cash reserves to fund EPC upgrades. This method is cost-effective, as it avoids interest charges associated with loans. However, cash is often already tied up and not quickly available. Using cash reserves may also prevent other works from being completed.
Personal Loans: Landlords who own rental properties in their name can opt for personal loans to cover EPC improvements. Personal loans offer flexible repayment and typically have competitive interest rates. They do not require collateral but are subject to the borrower's creditworthiness and financial history.
Business Loans: Landlords operating through limited buy-to-let companies can access business loans to finance EPC enhancements. Business loans offer larger loan amounts, making them suitable for significant property upgrades across multiple properties. Interest on these loans is often tax-deductible as a business expense, but they may require a proven financial track record and collateral.
Bridging Loan: Landlords with multiple rental properties, with 74% of landlords owning two or more rental properties, may opt for bridging finance to fund EPC improvements. Bridging finance provides quick access to funds, allowing landlords to make upgrades promptly with minimal disruption to tenants. This short-term financing option is especially useful for meeting mandatory EPC standards and can be repaid once more permanent financing is secured.
Final thoughts
Landlords have until 2028 to improve their properties' EPC ratings to C, although there’s concern this may change again. Landlords' commitment to improving energy efficiency is seen as a positive step, particularly in light of tenants' current cost-of-living challenges. These improvements benefit tenants by potentially reducing energy bills and contributing positively to environmental sustainability.
Landlords looking to make improvements should have an understanding of the following:
- Check their current EPC rating and upgrade where necessary.
- Understand legal requirements and necessary works.
- Engage an accredited energy assessor for an EPC assessment.
- Ensure timely completion of all improvements.
This will ensure that their properties meet the regulations and are more energy efficient when and if they occur.
