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How EPC changes could impact landlords

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The energy performance of homes in the private rented sector is under focus by the Government, with new rules set to be unveiled that will restrict homes below Energy Performance Certificate (EPC) level C from being let from 2028.

To mark Big Energy Saving Week 2022, we give you the lowdown on what EPCs are and what the new rules could mean for landlords.

What is an EPC?

An EPC is a detailed document giving information about a property's energy efficiency. It gives a current rating and identifies the potential for improvement. An EPC has a colour rating with grades ranging from A-G. The certificate and your property's rating will indicate to potential and existing tenants the cost of their energy bills. The higher the property's rating, the more energy efficient it is. The certificate is valid for 10 years and will only need renewing if you are selling your property or entering a new tenancy. However, if energy efficiency improvements are undertaken during the 10 year period it may be advantageous to update the EPC at that time.

What are the current regulations?

In April 2018 a new regulation was brought in with the Governments ‘Domestic Minimum Energy Efficiency Standard’ (MEES) rules that any privately rented domestic property cannot be let under a new tenancy if the EPC rating is lower than ‘E’. The regulation was extended to all existing tenancies from April 2020.

Failure to comply with this requirement can result in a financial penalty for the landlord of up to a maximum penalty of £5,000 and this is per breach of the regulations and per property.

What do these regulations mean for landlords with rented properties?

Any landlord who owns a property with an EPC rating below ‘E’ is not legally allowed to grant new tenancies until action and improvements are made to the property to raise the EPC rating to meet the minimum requirement.

However, landlords are not expected to pay over £3,500 (including VAT) for improvements. If the works needed will exceed this sum, the Government recommends the landlord makes any improvements up to that amount and then registers for an ‘all improvements made’ exemption.

Some properties are exempt from the regulations; for example, if the building is listed or protected. If the property meets the guidelines for exemption the landlord can apply via the ‘PRS Exemption Register’ which you can find here.

What are the potential changes to the EPC regulations?

The Government has proposed that private rented property must meet a minimum level of EPC ‘C’ for new tenancies by 2025 and for all tenancies by 2028.

This new requirement will also see an increase in the landlord investment level being capped to £10,000, a significant increase on the current level. It is estimated that on average the improvements needed to reach an EPC rating of “C” will cost landlords around £4,700. Again, there will be exemptions to these regulations, but these are yet to be confirmed.

These new rules are not yet set in stone. The Government is due to update on its plans during the first half of 2022.

Why is the Government considering these changes to EPC levels?

The Government has set a target of new net zero emissions by 2050 and housing will play a key role in achieving that target. The UK’s housing stock currently accounts for 21% of greenhouse emissions when energy consumption is included.   

Although significant improvements have been made in the past 15 years, the private rented sector still has a large proportion of older pre-war housing stock than other housing tenures and the Government wants landlords to invest in upgrading their properties.

What is the current energy efficiency performance of the private rented sector?

The Government’s own figures show that approximately four in 10 privately rented properties in England have an EPC rating of C or above, equating to 1.8 million homes.

Landlords have made great strides to improve the energy performance of the sector. In 2010, just 17% of privately rented homes were ranked at C or above.

Will the Government offer any financial support to help landlords upgrade?

The Government’s Green Homes Grant – launched at the start of the pandemic - was widely viewed as an expensive failure, so it is expected that the Government will replace this scheme with something more workable for landlords and homeowners.

Lenders, including Paragon, have also launched green products for landlords to encourage them to invest in better rated properties and we expect new products to be launched this year to help landlords upgrade their existing properties.

How as a landlord do you benefit from these regulations?

With the regulation changes and future updates, it’s worth identifying the range of benefits this will have on you, the landlord, and your property.

As energy bills reduce and become more affordable for tenants, landlords could see a decrease in rent arrears and an increase in tenant contentment for a higher quality and warmer home. Upgrading your property should increase its value and make it more appealing and easier to let, while also reducing maintenance costs.

For further information on landlord energy requirements, see the Government's energy efficiency guidance for landlords.

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