"The proposed MEES regulations mean landlords who fall below the EPC C threshold will have to make a choice between upgrading existing homes to the new standard or exiting the sector which could see supply further contract in the coming years"
- Flora Harley - Knight Frank
Residential landlords in England & Wales could face a potential bill of £21.6bn to meet new EPC requirements, according to data from Knight Frank. More stringent minimum energy efficiency standards for the domestic private rented sector were confirmed last week by the government, meaning all rental properties in the PRS across England & Wales must reach an EPC C minimum by 2030, up from the current minimum of EPC E.
Knight Frank compared the EPC certificates of more than 31,000 homes in the PRS that have improved their home energy performance in the previous five years, pre- and post-improvement. On average upgrading a private PRS property to an EPC C-rating would require 2.2 interventions – ranging from 1.6 interventions for properties previously rated EPC D-rating to around 4 interventions for those rated F or G.
Utilising the data of improvements undertaken for PRS properties, and fixed costs provided by CoreLogic whose retrofit service, Ecofurb, provides assessment through to installation for energy efficiency refurbishments, the average cost of implementing these as of January 2025 would be £8,148.
However, this varies depending on numerous factors, not least the size, age and existing efficiency rating of a property. Properties with an EPC rating D, for example, would typically need to spend £5,841 on the necessary improvements to move to a C-rating, with this figure increasing to average £14,107 for properties moving from a band F and more than trebling to £18,174 for those previously rated G.
Unsurprisingly, this varies by housing type with flats averaging £5,869 versus an average £9,410 for houses. It is noted that the current cost cap proposed is £15,000, although this is also being consulted on whether to reduce this to £10,000 for those under an 'affordability exemption'.
Scaling up to the entire 5 million households in the PRS, where around 60% are rated EPC D and below, the cost adds up to an estimated £21.6bn. Looking at average rental levels across all properties and applying to those EPC D-rated and below, that cost equates to more than five years of annual rent – notwithstanding any other associated costs.
According to the estimated carbon saved from EPCs, upgrading to a C-rating saves an average 2 tonnes of CO₂ per year -ranging from shy of 1 tonne for properties previously rated D to almost 10 tonnes from those rated G. Scaling this to all PRS households would potentially yield a reduction in C02 emissions of 4.5 million tonnes – 1% of the UK total (using 2023 figures) and around 5% of the total attributed to residential property (as per estimates that they account for a fifth of UK total direct emissions).
“This policy is not new. What needs to be different this time is a firm commitment that also sets out how the government is going to deliver this with both carrot and stick," explained Flora Harley, Head of ESG Research at Knight Frank, "Previous attempts have seen limited uptake for efficiency improvements and the recent news about the quality of wall insulation delivered is unlikely to help confidence in this. A clear, well thought-out and holistic approach is required. Finance also has a crucial role to play in enabling upgrades to be made. The discussion around property-linked finance could further enhance this."
She added, “Across the private rented sector there has been a notable reduction in rental supply in recent years: there are still 34% fewer homes listed to rent across the UK compared to the 2017–19 average, although a rise in Build to Rent is helping to alleviate some of this.
"The proposed MEES regulations mean landlords who fall below the EPC C threshold will have to make a choice between upgrading existing homes to the new standard or exiting the sector which could see supply further contract in the coming years. Longer-term, we expect the new homes market will stand to benefit, given higher building and efficiency standards which will be more attractive to new investors than non-compliant older stock.”
Gary Hall, Head of Lettings at Knight Frank commented, “Landlords are consistently tackling a series of evolving requirements from the government. Many are not making a profit on their rental property, making it challenging to fund substantial improvements without clear guidance on implementation options and financial support.
"To make meaningful progress in improving energy efficiency, landlords need assurance from the government that there will be grants available and a cap on the amount they will be required to spend. Introducing tax breaks for energy efficiency improvements would be a great way to support landlords and in turn, help the government achieve its targets.
“Bringing homes up to a good EPC level is in everyone's best interests, but it can't be at the detriment of the number of available properties on the rental market, which is reducing yearly. We must encourage investment in this sector, not force landlords to sell due to further margin erosion.”
Policy push
Currently, the Boiler Upgrade Scheme offers grants, up to £7,500, to cover part of the cost of replacing fossil fuel heating systems with a heat pump or biomass boiler. Whilst the takeup of heat pumps has been lower in the UK than in other countries, 2024 saw a record number of installations due to the BUS. Indeed, redemptions on the BUS reached almost 3,000 in October 2024 and 39,738 (of which 97% were heat pumps) since May 2022.
Overall, around 260,000 heat pumps are installed across the UK, according to the MCS, with around 135,000 government-supported installations, according to the latest data. While progress is being made, this is still far short of the 600,000 annual target by 2028.
The other pinch point is who will deliver the measures. Estimates from The Green Jobs Taskforce indicate the UK will need 230,000 additional trained workers by 2030 to retrofit all buildings – some of which will be residential specific.
The Government’s Green Home Finance Accelerator (GHFA) £20 million innovation programme is also bringing forward solutions to assist homeowners with their decarbonisation and energy efficiency improvements.
Potential impact on owner-occupier households
It is more expensive for owner-occupier households, who have required slightly more interventions with an average of 2.4 required, which would cost £9,275 to get to an EPC C-rating. This ranges from £7,044 from a previously D-rated property to £18,378 from G-rated. Scaling this up, the total potential required by owner-occupiers amounts to £90.6 billion, but it could reduce the UK CO2 emissions by 4% or 20% of residential emissions.
