Are owners ready for the EPC rule changes?


Jon Cooper, Head of Mortgage Distribution, Aldermore

Owners are experts at dealing with change. They’ve had a lot of practice over the past 10 years. But the next hurdle is high.

Minimum energy efficiency standards are set to tighten considerably in just three years if the government’s proposals come to fruition. And properties that aren’t up to scratch won’t be able to be re-let to tenants.

While most landlords are aware of the potential new rules, some are not, and many don’t yet have a plan to deal with the changes.

Aldermore conducted extensive qualitative research with owners in November 2021 to gauge their knowledge and views on the changes. We found that the majority were well informed but, worryingly, a minority were completely unaware.

What is changing?

According to the proposals, the first deadline will likely be 2025, when properties in all new rentals will need a minimum energy performance certificate (EPC) of C. Three years later, in 2028, all existing rentals will be compliant with the minimum standards.

The majority of owners are well informed but, worryingly, a minority are completely unaware

This is a huge challenge as the private rental sector is already less energy efficient than other tenures, with an estimated 3.2 million private rental properties below a C. These properties will need to be upgraded to improve their energy efficiency, which could involve better insulation, double or triple. glazing, a new boiler or other measures, depending on the property.

Landlords would have to pay for the works, up to a proposed price cap of £10,000 and an estimated cost per property of £4,700. How much they need to spend depends on their properties, but landlords who rent out older homes are likely to be hit the hardest.

Owner Options

Your clients can have the funds ready to make the necessary changes to their properties. If so, that’s fine, although they’ll still want to assess whether it’s financially viable for them to undertake the work.

If your clients have mortgages due for renewal in a year or two, it is important that they take into account the changes in the EPC and the potential need to raise additional funds.

Aldermore’s research revealed that owners were already factoring in the cost of upgrades and how they would find the right craftsmen to get the job done on time.

If your clients don’t have the money to pay for the upgrades, they could borrow it, perhaps raising capital through additional mortgages to unlock equity to fund energy-efficient home upgrades.

What about the wider impact?

Some owners will do the math and simply decide to sell their property. Our research found that owners were already thinking about the implications of not achieving a C rating and wondering if selling now would get them a better price.

Landlords would have to pay for the work, up to a proposed price cap of £10,000

Renters could see the supply of rental units fall, which could drive up rents, and landlords could increase rents to offset the cost of these changes.

We may see an increase in older rental properties with poor energy efficiency coming onto the purchase market. If those properties are no longer appealing to owners, that can be good news for first-time buyers looking to grab a bargain. However, it is unclear at this stage how lenders will also tighten requirements for residential EPC ratings.

It’s time to act

You have a good reason to reach out to your rental clients, whether or not they have maturing mortgages. It is in their interest to understand these new rules and put a plan in place to deal with them.

Some owners are already considering the implications of not achieving a C rating and wondering if selling now would get them a better price.

The proposed changes to the EPC are three years away, but if your client needs to take out additional loans, find tradespeople, make improvements to their properties and get a new EPC, it’s now time to consider his options.

If they have mortgages to renew in a year or two, it is important that they take into account the changes in the EPC and the potential need to raise additional funds, before locking in another fixed rate which could bind them beyond the deadline.

Of course, we will keep listening to owners and brokers, keep you informed of developments and support your customers.

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