EPC Standards are Changing – What Landlords Need to Know
The energy performance standards for rental properties will require all new rental properties to achieve a minimum energy rating of C or above on their Energy Performance Certificate (EPC) from 2025.
With standards changing for new build rentals changing from 2025 and all existing properties from 2028, landlords are being advised to act.
However, according to a Nationwide survey, one-third of landlords either are only vaguely aware of the changes or are completely oblivious of them. So the current issue is twofold – awareness of the regulation changes and completing the refurbishments required.
Finbri bridging loans who arrange specialist property finance for landlords throughout the UK, explains,”The requirement for property to become more energy efficient is a part of the government’s ongoing initiative to modernise privately rented housing to help it reach its ‘net zero’ goal by 2050. Landlords improving the energy efficiency of their properties will help to drive up standards across the housing sector as a whole and with increasing energy costs, efficiency is more important than ever for existing and prospective tenants with buyers paying an average of 15.5% more for a home that complies with high energy efficiency standards.
“But with an estimated 58% of homes with an EPC rating of D or lower, and ever rising costs, refurbishments should not be put off and action needs to be taken now.”
What are the current EPC standards?
An EPC is a legal requirement whenever a property is rented out, and it rates the property on a scale from A (most efficient) to G (least efficient).
At present, the minimum EPC rating a property must have to be rented out is an E. However, this is only required if the property was built before the 1st of April 2018. For properties built after this date, the minimum standard required is D.
There are also exemptions to these standards that should be noted:
• Properties that are officially listed and would be unacceptably altered if requirements were enforced.
• A temporary structure that will be used for no more than two years.
• Properties used for religious purposes.
• Energy-efficient industrial sites.
• Non-residential agricultural structures.
After registration, the exemption typically lasts for five years; after that, it expires, and the landlord must try again to raise the property’s EPC rating to the required level. A new exemption may be registered if this cannot be accomplished.
An EPC certificate remains valid for ten years, but a new certificate will be required if the energy rating on the property has improved – by implementing energy-efficient changes to the property sooner rather than later landlords may be able to cut any potential costs.
What’s changing?
All privately rented residences in England and Wales must comply with the government’s MEES stating that as of 2025 all rental properties will need an EPC rating of ‘C’ or above, with similar changes coming into effect in 2028 to include all tenancies.
It is crucial to be aware of the risks involved with failing to adhere to these new standards, as landlords will be subject to financial penalties. Landlords and investors need to know that there could be fines of up to £30,000 if a property does not comply.
How will this affect landlords?
The new legislation is predicted to have a significant impact on landlords. 58% of homes don’t meet efficiency standards and refurbishments are required. This could involve everything from installing double glazing to insulation and renewable energy measures.
The cost of these improvements will vary depending on the property, with the estimated cost of increasing the EPC rating is anticipated to be around £9,260 from a band D or below to at least a C.
However, by further improving your property above the minimum C rating, you will increase the value of your property. Buyers are placing an average 9.4% premium on homes that are energy efficient. On the average UK house price of £283,000, an average increase of £26,600 – more than twice as much as the average £10,000 it costs to make energy-efficient upgrades to a home.
Estate agents are now reporting buyers are paying an average of 15.5% more for a home that meets high energy efficiency standards.
The majority (79%) of estate agents reporting that inquiries about energy efficiency from buyers have increased over the last year – especially considering annual energy bills for households using a typical amount of gas and electricity have now risen to £2,500, an increase of £500.
How your property is wasting heat & money – and how to increase efficiency and avoid fines
According to efficiency figures, the most common ways heat is escaping your property is through the walls (45%), the roof (25%), the windows (10-20%), the doors (10-20%) and the floor (15%).
As a landlord, the following improvements will increase property efficiency:
• Installing a new condensing boiler – increases efficiency by 34%
• Wall insulation – 25%
• Roof/loft insulation – 25%
• Replace windows – 20%
• Replace doors – 20%
• Add floor insulation – 15%
Depending on the current EPC band of the property will determine the type of improvements required, for example lower band properties (F/G) are likely to require window replacement and loft insulation. According to research produced by Knight Frank, properties that increased their EPC rating from an E to C saw a price increase of 8.8%.
Are there any further changes in the future?
The short answer is yes! Further changes are expected to occur in 2025 and 2028.
All rental properties will have to achieve a band “C” energy performance certificate rating by 2025, with all tenancies having to do so by 2028 . This new EPC legislation hopes to make homes more energy-efficient and reduce carbon emissions in line with the government’s net-zero carbon target by 2050. The ultimate goal being that by 2030, the minimum energy efficiency standard in relation to non-domestic buildings to a ‘B’.
The fine for not having an EPC that is valid and is a “C” or higher will increase from £5,000 to £30,000 when the regulations are amended in 2025.
Final thoughts
Despite considerable changes expected over the coming years, according to a Nationwide survey, one-third of landlords are only vaguely aware of the changes or are completely oblivious to them. By reaching the EPC standard before the supposed deadlines, landlords can potentially avoid any additional premiums when demand ultimately rises.
Finbri said, “Currently, only a third of UK homes meet the EPC rating of C or above and there are an estimated 19 million homes that require property refurbishment investment to get up to standards.
“However, rising costs are a concern for landlords. But the clock is ticking and further refurbishment delays could prove to be more costly. Landlords and investors need to know that there could be fines of up to £30,000 if a property does not comply.
“But it’s not just that it’s a requirement to increase efficiency, these property refurbishments are likely to be a profitable investment by adding value to the property when it eventually comes to selling.”
It’s essential that landlords keep up to date with the latest changes and ensure that their property portfolio meets the changing standards. However, with the right information, source of funds and support, these changes do not have to be daunting. Ultimately, making these changes early could save you a significant amount of money in the long run.
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