Homeowners trapped in £7,000 EPC funding shortfall: Paragon

More than three-quarters of owners are willing to spend up to £3,000 to upgrade each of their properties to Energy Performance Certificate C to meet new regulations, but the average cost of these upgrades is over £10,000 £, according to Paragon Bank.

It revealed that 77% of buy-to-let landlords are willing to spend £3,000 to comply with government proposals that new rentals must have an EPC rating of at least C by the end of 2025, in its report on the energy challenge of the rental sector. For existing leases, this will apply from December 31, 2028.

But the bank estimates the true cost of these improvements, which include a range of features such as window replacements and loft insulation, to be £10,560 per property.

In England, 42% of homes and 37% of properties in Wales have an EPC rating of C or better, according to Office for National Statistics data released in January.

The bank’s study also provided details on the mix of financing the owners intend to use to pay for these upgrades. It says six in 10 said they would use savings, making it the most popular potential source of finance, followed by 27% who say they would raise the rent.

He adds that 19% would rely on government funding, 8% would seek an additional advance from a mortgage lender or take out a loan, and 7% would free up equity from their portfolio.

These government proposals may also influence the type of properties homeowners are willing to buy, with 68% of homeowners saying they are less likely to buy homes with an EPC rating of D or lower. Although 21% of BTL owners say it would make no difference to their future acquisitions, while 4% add that they would be more likely to buy a property if it was rated below EPC C.

Paragon Bank’s Managing Director of Mortgages, Richard Rowntree, says: “It is encouraging to see that landlords anticipate that future portfolio expansion will target properties rated EPC C or higher, bringing more energy-efficient properties into the private rental sector.

Of course, this is only part of the problem, as data shows that much of the current private rental stock is below the standard required by the proposed new regulations.

The apparent disparity between what it will likely cost to meet these standards and what owners are willing to spend helps illustrate the financial challenge the new regulations would pose to BTL investors.

There remains a lot of uncertainty around the proposals, so the sector needs clear guidance from the government. With this, I hope owners will have a better understanding of how the new regulations will impact them and the resulting financial support they would need.

The bank’s report interviewed 700 owners.

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