The standard of privately rented homes is a key component of the sector's hottest topic, the Renters’ Rights Bill.
Legislation that ensures tenants live in safe, comfortable homes is something we wholeheartedly support, and landlords have been delivering.
Government data shows how the standard of privately rented homes has improved significantly over the past 15 or so years.
In 2005, 47% of private rented sector (PRS) properties were classed as ‘non decent’ according to the English Housing Survey (EHS). By 2023, this figure had fallen to 21%.
The improvement of PRS stock quality corresponds with an increase in BTL investment. Industry figures show that the number of outstanding BTL mortgages grew from one million in 2010 to just under two million by October 2024.
Lending on poor quality properties presents credit and reputational risk for lenders, and the surveying and underwriting used to mitigate this is an important tool in driving up standards in the sector.
Landlords tell us that they target properties in need of improvement and spend substantial amounts rejuvenating them, helping to challenge the outdated view that privately rented homes are second rate.
Yes, improvements can increase capital value and rental income, but landlords are also motivated by the need to attract and retain good tenants.
Many operate their portfolios as long-term businesses, recognising that a well-maintained property helps create positive landlord-tenant relationships.
With Labour launching a consultation on Minimum Energy Efficiency Standards (MEES) in February, the transition to a greener rental sector is another aspect of PRS regulation on the agenda...again.
Proposals have been put forward that would require all privately rented properties let under new tenancies to achieve an energy performance certificate (EPC) rating of C or above by 2028. This obligation would extend to existing tenancies by 2030.
With the consultation concluding in May and reform of the EPC system scheduled for 2026, the issue will continue to gather momentum in 2025 and beyond.
While the potential rule changes bring uncertainty that may mean some landlords are hesitant to undertake upgrades, we know that many have been improving their portfolios long before the latest focus.
We see this in our lending data, with the proportion of loans on our book for properties with EPC ratings of A-C increasing to 53%.
EHS figures show that this trend is evident across the wider market too. Between 2013 and 2023, the proportion of EPC A-C properties has more than doubled from 23% to 48%.
Nevertheless, with the tenure making up almost 20% of UK households, almost three million properties need some level of green energy retrofitting.
If the policy becomes law and is enforced from 1 January 2026, that leaves 504 working days to 1 January 2028 and 1,008 to 1 January 2030.
Dividing the number of PRS properties estimated to be below EPC C, 2.99 million, by 504 days reveals that 5,934 properties would need to be upgraded every day to meet the proposed 2028 deadline. Dividing by 1,004 shows that 2,978 homes would require retrofitting by 2030.
Of course, these calculations are based on assumptions, but they give weight to our view that the timescales proposed are unrealistic.
The government estimates necessary enhancements will cost between £6,100 and £6,800 per property and the consultation highlights the financial support would be available to landlords.
The actual cost will obviously vary, and grants are subject to eligibility so it's likely that landlords will also need to explore finance options.
Interestingly, Paragon research shows that almost six in 10 landlords haven't commissioned EPC assessments after enhancing properties.
Additionally, it’s estimated that around 60% of PRS properties are owned outright, suggesting that there may well be asset rich, cash poor landlords who could use equity to borrow funds needed to finance upgrades.
This highlights how a shifting legislative landscape can provide opportunities for the sector.
But these opportunities will diminish if the rules are too punitive and act as a barrier to investment.
This is why we’re actively engaging with politicians, highlighting the need for legislation that benefits landlords as well as tenants.
