Landlords and tenants agree over the importance of EPC ratings

Posted on Thursday, February 9, 2023

New research completed by property bridging loan broker, Finbri, has discovered 47.55% of UK landlords think EPC ratings are ‘Very or Extremely important’ when buying an investment property. With the current energy costs, the research findings demonstrate the importance of the EPC rating and energy efficiency in the UK rental market. 

A recent survey of over 1,000 UK landlords found that 47.55% think Energy Performance Certificates (EPC) ratings are ‘Very or Extremely important’ when buying an investment property, while further research found that 31.57% of renters consider EPC ratings to be 'Important' when choosing their current rental property, and a further 28.57% believe the ratings to be Very important (18.28%) or Extremely important (10.29%).

Landlords improving the energy efficiency of their properties will help to drive up standards across the housing sector as a whole. The research conducted by Finbri has identified the growing significance and understanding of an improved EPC rating, with 48.05% of landlords intending to complete EPC improvement-related works to investment properties in the next 12 months.

What changes are coming in 2023?

In accordance with the government's Minimum Energy Efficiency Standard (MEES), all privately leased homes in England and Wales must have an EPC rating of "C" or higher as of 2025, with similar changes coming into effect in 2028 to include all tenancies.

According to figures from the Department for Levelling Up, Housing, and Communities, nearly 14 million households in England and Wales (approximately 59% of domestic properties) have an EPC rating of D to G, with G being the lowest possible rating. So there is much work to be done to reach the 2025 target.

Given that landlords would face financial penalties for breaking these new rules, it is imperative that investors and landlords understand and act upon the requirement as those who fail to comply can be fined up to £30,000.

EPC ratings are becoming increasingly important

The UK is currently facing a cost-of-living crisis, tenants are increasingly concerned about their future energy and gas costs. This is why EPC ratings are becoming more important for both landlords and renters alike – with over 48% of landlords planning to upgrade their properties’ energy efficiency in the next 12 months.

47.55% of UK landlords think EPC ratings are ‘Very or Extremely important’ when buying an investment property, with 47.95% believing EPC ratings are ‘Very or Extremely important’ to their tenants.

At the same time, 31.57% of renters consider EPC ratings to be 'Important' when choosing their current rental property, with an additional 28.57% believing EPC ratings to be ‘Very or Extremely important’.

This indicates that both landlords and tenants are, for the most part, on the same page regarding the importance of EPC ratings and the need for energy-related property improvements. In order to encourage this, landlords should be incentivised to carry out energy improvements, as this could help both parties save money in the long run.

How to increase the energy efficiency of your property:

As a landlord, the following improvements will increase property efficiency:

Installing a new condensing boiler - increases efficiency by 34%
Wall insulation - 25%
Roof/loft insulation - 25%
Replace windows - 25%
Replace doors - 20%
Add floor insulation - 15%
Depending on the property, these modifications will cost different amounts, with the cost to raise the EPC rating from a band D or below to at least a C expected to be roughly £9,260.

However, you can raise the value of your property by making additional improvements above the required C rating. Energy-efficient homes command an average 9.4% premium from buyers. An average increase of £26,600, or more than twice as much as the typical £10,000 cost of energy-efficient property improvements, is applied to the average UK property price of £283,000.

Are further changes expected in the near future?

2025 and 2028 are predicted to bring about additional developments.

By 2025, all rental homes must receive a band "C" energy performance certificate rating, and by 2028, this will apply to all tenancies. By reducing carbon emissions and improving energy efficiency, this new EPC legislation seeks to help the government reach its net-zero carbon target by 2050. The ultimate objective is to have non-domestic buildings meet a minimum B-grade energy efficiency requirement by 2030.

When the regulations are changed in 2025, the fine for not having an EPC that is valid and is a "C" or higher will rise from £5,000 to £30,000.

Final thoughts

The energy crisis has thrown EPC ratings into the spotlight and its importance has become clear. Landlords must take action now to ensure they meet the required standards. The introduction of stricter regulations in the near future will mean landlords must invest in energy efficiency upgrades now or risk expensive fines. Not only will this help landlords to avoid hefty fines, but it will also help them to secure better rental yields and increase the value of their properties whilst also helping their tenants.

Stephen Clark, from Finbri, comments: “The government's ongoing effort to modernise privately rented housing as a means of achieving its "net zero" objective by the year 2050 includes the requirement that properties become more energy efficient. With rising energy costs, efficiency is more important than ever for current and prospective tenants, and investors understand this with buyers paying an average of 15.5% more for a home that complies with high energy efficiency standards."

Via @PropertyReporter