"Making necessary improvements to meet the new regulations will likely cost thousands of pounds per property. Meeting the new government's energy efficiency standards will force property investors to find ways to offset that cost. The obvious outcome could be higher rents, which is never good for tenants"
- Stephen Clark - Finbri
The Labour government's recent confirmation that all rental properties must achieve an Energy Performance Certificate rating of Band C by 2030 has sparked great concern across the sector.
A recent survey conducted by Finbri reveals that 76% of UK property investors are worried about escalating costs due to inflation, while 71% are concerned about the impact of rising energy prices.
The new EPC regulations are part of the government's broader strategy to reduce carbon emissions, improve housing efficiency, and lower tenant energy costs. However, the financial implications of these changes are substantial, especially for investors with multiple properties in the current economic climate, where inflation is driving up the costs of ERC improvements.
Stephen Clark, from Finbri bridging finance, comments: "Most people appreciate the need to reduce carbon emissions and make properties more energy-efficient, but the new additional EPC regulations will put a further financial strain on smaller landlords in the private rented sector.
“Making necessary improvements to meet the new regulations will likely cost thousands of pounds per property. Meeting the new government's energy efficiency standards will force property investors to find ways to offset that cost. The obvious outcome could be higher rents, which is never good for tenants.”
Understanding the new EPC requirements
An Energy Performance Certificate is a measure of a property’s energy efficiency, ranging from A (most efficient) to G (least efficient). Currently, rental properties in the UK must have a minimum EPC rating of E to be legally rented out.
However, the new target is that by 2030, all rental properties must achieve a minimum EPC rating of Band C. Failure to comply with these new standards could result in severe restrictions, including the potential for properties to be deemed "unrentable" and landlords facing substantial fines.
Survey discovers inflation is the top concern for investors
With 76% of investors worried about rising costs due to inflation, the challenge of upgrading properties to meet the EPC C standard is daunting. Especially as market analysis of 50,000 rental properties in England, Wales, and Scotland has discovered that the average cost to upgrade to EPC C is approximately £10,000.
Recent data shows that nearly two-thirds of all BTL properties in the UK currently have an EPC rating of D or below, meaning that most landlords must make considerable investments to bring their properties up to the required standard.
Inflation is heightening the situation, with the cost of typical EPC improvements, such as insulation, double or triple glazing, heating system upgrades, and renewable energy solutions, rising sharply. For instance, the cost of insulation materials has increased by 20-30% since the COVID-19 pandemic, and the price of new boiler installations has risen by 15-25% over the past four years.
Landlord and tenant energy cost concerns have risen as prices are set to increase by 10%
The survey also highlighted that 71% of investors are concerned about the impact of rising energy prices on their investments. The recent announcement that gas and electricity prices will rise by 10% in England, Scotland and Wales from October will only add to these concerns.
Landlords with properties that do not meet the new EPC requirement could see a decline in demand as energy efficiency becomes a critical factor for both tenants and buyers.
Indeed, Finbri’s 2023 survey of 1,000 UK renters found that a combined 80% were either concerned (33%) or strongly concerned (47%) about their rental property energy costs.
However, tenants may become more concerned about the prospect of their rental fees increasing as landlords offset the costs of the EPC improvements.
Multi-property investors look to financing options for costly EPC improvements
Finbri’s survey discovered that 69% of investors own 2 or more investment properties. So, the financial burden of upgrading several properties to meet the EPC C standard can be significant for investors with multiple properties. The previous government had planned a £10,000 price cap per property for EPC improvements, but the new government has yet to commit to such a cost cap.
Several financing options are available to help manage these costs, including bridging loans, green mortgages, government grants, and private financing. Additionally, phased upgrades may be a sensible approach for investors who cannot afford to upgrade all their properties at once.
Final thoughts
76% of investors are concerned about inflation, and 71% are concerned about energy costs and with the new EPC requirement for all rental properties to be rated C by 2030, there is a significant financial challenge ahead for property investors.
With investors looking for financing options to cover the costs of the EPC improvements, renters face the daunting possibility of increased rents. Reaching the new requirement could cost an average of £10,000 per property, a costly strain for the 69% of investors that own multiple properties.
