"To meet the government’s 2030 target, the same number of homes will need to see energy upgrades over the next five years as we’ve seen make improvements in the last 30 years"
- Aneisha Beveridge - Hamptons
At the current rate landlords are making energy efficiency improvements, it will take a further 18 years for all privately rented homes in England & Wales to achieve an EPC A-C rating.
This means it would take until 2042 for all rental homes to become compliant with the new rules suggested by Labour. While this is later than the government’s 2030 target, it still represents an acceleration from the 89 years it would have taken at 2016 rates.
This is partly because some landlords have already been making energy upgrades to meet the Conservative's plans that were scrapped last year.
So far this year 39% of EPCs carried out on rental homes have seen the property move into a higher band.
While this figure is above the long-term average, it still sits below the rate of energy upgrades seen in the years running up to 2018 when the requirement to achieve an EPC rating of at least an E was introduced.
To meet the proposed 2030 target, every year until then, around 340,000 rental homes will need to make improvements to achieve at least an EPC C rating. Around 115,000 homes will make sufficient improvements to achieve an EPC C rating in 2024, meaning the rate will need to increase threefold each year until 2030.
So far this year, 55% of all privately rented properties that had a new EPC certificate granted achieved a rating of C or better, compared to 48% of owner-occupier homes.
Given the increasing importance of an EPC C rating, rental homes moving EPC bands were most likely to move from a D rating up to a C rating. Half of homes that were previously rated D went on to achieve at least a C rating upon reassessment this year.
Meanwhile, 29% of homes that had an EPC E rating went on to be reassessed with a rating of C or above. Conversely, just 9% of homes that previously had an EPC C rating went on to achieve a rating of B or above.
Of all the homes that received a new EPC rating in 2024, 39% found themselves in a higher band, 48% saw no change and 13% dropped into a lower band.
Data from EPCs carried out so far this year suggests that between 3-4% of rented homes will be unable to achieve an EPC rating of A-C.
However, prior to changes in the EPC methodology in mid-2022, this figure was between 7-8%. The new methodology reduced the assumed environmental impact of electrical appliances, in some cases pushing homes heated by electricity rather than gas into higher bands. It also means EPC ratings produced before 2022 are liable to change.
Homes with lower EPC ratings and those unable to achieve a rating of at least EPC C are disproportionately older, cheaper, and likely to be located in the North of England. This is why the average EPC D-rated home achieved a gross yield of 7.6% in 2024, outpacing a yield of 5.5% achieved by the average EPC A-rated home, which tends to be newly built. EPC E-rated homes achieved the highest yields of 7.9%.
The value and the way many of these higher-yielding homes are built is likely to mean an EPC C rating is often unviable and, in some cases, unobtainable. The reality is, that several landlords will hit the spending cap before reaching the proposed energy target.
For tenants, the financial benefit of a higher EPC rating is significant, particularly as energy prices have risen. Today, the average tenant will save £499 per year on their utility bills (gas and electricity) if their home is upgraded from an EPC D to EPC C rating, a 76% increase in savings since 2019. Tenants in EPC E-rated homes will save £1,248 per year, an increase of 83% since 2019.
Rental growth
Rents continued to rise across the country in July, buoyed by double-digit hikes in the North of England.
Across Great Britain, the average rent on a newly let property rose to £1,354 pcm last month, 5.7% or £72 pcm more than in July 2023. This marks the twelfth consecutive month where the annual pace of growth hasn’t risen. However, outside London, rents rose 7.2% year-on-year, driven by a 10.3% annual increase in the North of England where rents have been accelerating since March.
This means that rents in the North (North East, North West and Yorkshire & Humber) are rising three times faster than in London, where the average rent on a new tenancy increased by 3.0% year-on-year, down from the 13.9% increase recorded in the capital in July 2023.
This comes despite average rents in Inner London returning to growth following three consecutive months of annual decline. For the first time since January, Inner London rents rose faster than in Outer London.
While the pace of rental growth has slowed for larger homes, rents for smaller properties are accelerating as tenants downsize to keep their monthly payments within their means. The average one-bed home rose to £1,092 pcm in July, up 7.6% compared to the same time last year.
Meanwhile, the average three-bed rent increased by 5.2% and the average four-bed rose by 3.8%. The average one-bed property now costs the same amount as the average two-bed property back in September 2022.
Aneisha Beveridge, Head of Research at Hamptons, said: “Successive changes to proposed energy efficiency rules have shifted the goalposts for landlords, some of whom face costs which can run into tens of thousands of pounds.
"Despite this, many investors have continued to improve the energy efficiency of their rental homes and we’re currently on track to see 100% of rental homes where an EPC A-C is viable, reach that rating within a generation.
“To meet the government’s 2030 target, the same number of homes will need to see energy upgrades over the next five years as we’ve seen make improvements in the last 30 years. While a requirement for all rental homes to achieve an EPC A-C rating by 2030 is achievable at a stretch, landlords need adequate time and resources to meet it. It is essential landlords receive complete clarity on this target this year.
“Rental growth continues to outpace inflation, despite the pace of growth moderating over the last year. However, there are also signs that the large increases in stock levels since 2023 are beginning to subside. In January, stock levels were up 34% year-on-year, a figure which is now 22%.
"A fall in stock levels is likely to reignite the pace of rental growth, particularly given that longer-term there are around a third fewer rental homes than there were five years ago.”
