It is undeniable that governments and large financial institutions across the Western world are currently in the process of recalibrating their approach to net zero promises.
This is partially a result of hugely complex macro events, ranging from the invasion of Ukraine to investor behaviour in a rising interest rate environment.
Some of these causes may seem far off and abstract, but their effects touch us all – and not least those of us in the residential buy-to-let (BTL) sector.
In 2020, the government announced that by 2025, all properties hosting new tenancies would need an Energy Performance Certificate rating (EPC) of C. This was raised to 2028 for continuing tenancies. Failure to do would see up to £30,000 levied in fines. Today, all rental properties must have an EPC rating of E.
There has predictably been much discussion about this in the BTL space. Whilst the majority of people support a transition to more efficient housing – who doesn’t want our portfolios to be cleaner and cheaper to run? – the unique makeup of UK housing stock means the initial financial outlay could be considerable. And there are no plans for government support in making properties more energy efficient.
For example, Government figures shows that 20% of houses in the UK were built before 1919. Not only are these houses expensive to make more efficient, but modern additions such as double glazing and blocked chimneys can create more problems, such as the growth of mould.
Conversations such as these have led to some landlords expressing a wish to exit the market – a catastrophic move in our current climate, where demand for rental properties is at an all-time high and other economic factors, such as tightening lending criteria and rising rates, are already forcing a significant number of landlords to leave the market.
Perhaps Housing Secretary, Michael Gove has been listening. He recently commented to the Sunday Telegraph that he wants to “relax the pace” of these proposed deadlines and that the Government is asking “too much too quickly” of landlords. So, there is a chance that the 2025 and 2028 dates are pushed further into the future, but it would be unwise to take this as a given.
At Castle Trust Bank, we support the ultimate aims of the new EPC regulations wholeheartedly, but we also recognise concerns that these changes may be damaging to not just landlords, but also renters if they are not implemented with careful consideration.
With demand for rental property continuing to exceed supply and rents hitting record levels, we believe that pushing landlords out of the sector now, would only lead to a worsening housing crisis.
The detail of EPC regulations may continue to be in question, but there is little doubt in the direction of travel and they will be introduced at some point in the foreseeable future. With this in mind, landlords could do worse than getting ahead of the game and making any required changes as the opportunity arises.
Holding off until nearer the deadline could see them struggling to access the right contractors, who will be in high demand, and potentially lead to increased costs. For many, bridging finance can provide a good way for landlords to finance improvements to their properties – enabling them to quickly access the funds to carry out the work and then refinance, potentially at a higher property value.
The message for brokers is that it’s worth having conversations now with your clients about their plans to meet their EPC obligations in the future. The bigger picture may continue to be vague, but by taking control of their plans, landlords can ensure they are best placed to respond to regulation and protect their investment.
Anna Lewis is commercial director at Castle Trust Bank
