As an industry, we have been engaging in a quite dynamic conversation about minimum EPC levels for rental properties for some time.
As an industry, we have been engaging in a quite dynamic conversation about minimum EPC levels for rental properties for some time.
Up until now, there has been a danger this could be just ‘industry talking point’, and landlords might not have been engaged in what their future responsibilities might be, however recent evidence pleasingly suggests this is not the case and they’ve not just been listening, but acting.
Of course, this has not been helped by a perceived lack of clarity when it comes to the measures that will (or will not) be introduced. We have all been working on the assumption that a two-phase 2025/2028 approach to compliance for new and existing tenancies for the best part of two years. Now, however, we are led to believe that might not be the case, and that the deadline will be 2028 for all rented properties, which perhaps recognises some of the trickier issues with compliance among a housing supply predominantly built in Victorian times and clearly not built with the same requirements needed for modern-day energy efficiency.
That being the case, it was still positive to see the results of the latest BVA BDRC quarterly research of landlords — taken on behalf of Foundation — which showed a much more engaged community with minimum EPC levels now, and an understanding of what they may need to do in the future if the property is currently below C.
The research revealed that 85% knew about and fully understood the requirements (up from 65% at the end of 2022), 12% said they were aware but didn’t comprehend (down from 25%) and just 3% were not aware (down from 9%).
This is a significant shift and perhaps shows that all the industry ‘noise’ is worth it — we are not just talking into a void, these conversations are definitely hitting the mark.
Admittedly, this survey was carried out prior to the new rumours that shift the two-phase EPC changes into a one-phase compliance by 2028, but it seems somewhat reassuring to hear that the level of knowledge and understanding of this has grown significantly.
There is also nothing to suggest landlords won’t stay fully involved with the process, especially given that the survey also revealed many have already carried out remedial work, not just to comply with more recent changes, but also in order to future-proof the property for what is likely to be coming over the horizon.
Some 80% of landlords said they had already completed some remedial work in response to these requirements — split between 52% who said they had done the work at the minimum cost in order to comply, but almost two in five (38%) said they were carrying out the works in order to maximise the long-term value of their property and the viability of it as a dwelling able to house tenants in this new EPC era.
In that sense, and given the nature of landlords as savvy investors here for the long-term, it should be perhaps obvious that green BTL mortgages are likely to look increasingly attractive, especially in the current rate environment which might look very different to what the landlord mortgaged into last time.
The attraction of a reduced rate for properties with an EPC level of C and above, set against the backdrop of potentially greater affordability challenges and rates generally being higher, will only grow in our view. We also anticipate that, particularly for those landlords whose properties are perhaps only just below a C, there will be a greater engagement with having any work completed in order to make that grade and to benefit from the keener rates available now.
This potentially provides a two-prong approach for advisers in terms of their BTL landlord clients, especially for those coming up to remortgage and those who might have multiple properties within a portfolio which are below a level C.
Interestingly, at present, when asked how they might fund any remedial work required, the vast majority of landlords said they will dip into savings, but whether this does work out in practice and whether — when push comes to shove — they might prefer to use a mortgage or a loan, remains to be seen.
However, clearly this presents a significant opportunity for advisers in terms of the conversations they are having right now with landlords about their finance needs. Lest we forget that a five-year deal taken in 2023 will take the property beyond the expected 2028 deadline — therefore, this might be the absolute right time for landlords to consider how they might pay for any work required in order to be compliant by then. These are touchstone points for advisers with landlord clients, and if you ever needed a conversation starter with them, this is undoubtedly the time. The further good news comes not just in the appetite to lend that finance providers like ourselves have for the BTL market in general, but specifically the green product options we can offer.
Landlords are clearly thinking about all of this in greater numbers and therefore advisers should be expected to help them find the solutions they need to give long-term certainty and compliance with the requirements.
