The most recent draft deadline is set to be extended from 30 April 2025 to 31 December 2025, with a further extension to 2026 expected. However, time is becoming a serious factor for landlords looking to not be penalised as the currently proposed 2025 and 2028 deadlines for existing and new and tenancies loom.
So, this week, Mortgage Solutions is asking: How realistic is it for professional landlords to get their properties up to required A-C EPC ratings within the proposed deadlines?
There’s a lot of noise about this and market movement from a lender perspective, which is great.
Regarding the implications, it can be detrimental from two perspectives. Firstly, the cost. The costs of double glazing, boilers, loft insulation and lighting is going to be expensive. Can a landlord get a mortgage tomorrow or not? Can they change the properties and is it cost effective? Also how much will it disrupt tenants in situ and affect those relationships?
Second, the borrowing perspective – if they’ve got a low EPC rating and can’t improve it, does that mean the mortgage will seize? I fear that the EPC law could become a mortgage trap like the cladding issues.
In my experience, while they’re all aware of it, a lot of the landlords we work with are taking it lightheartedly as it’s further down the line, so as advisers we make a lot of noise about it. They’ve been asking for the green products as part of our fact finding exercises anyway.
We recommend A-C rated properties, but most of the older properties have an E or an F. Most can be brought up to spec with a light touch like a few bulbs, but it depends on the property itself.
Every disaster has winners and losers depending on how you look at it and how deep your pockets are. Will a cash buyer with a lot of capital be able to get around the rules because they’re buying in cash?
A lot of our clients are feeling it, they’re always improving their property to get a higher rent and longer tenancies anyway, so it’s something that should be on their minds regardless.
Upgrading properties to be more energy efficient is absolutely the right thing for the market to be aiming for, but the sheer logistics alone of doing so means the current deadlines are ambitious.
There’s a huge amount of property that falls outside the required A-C bandings, and the first deadline of 2025 for new tenancies is realistically, not far around the corner. With that in mind it will take a monumental effort for landlords to get their properties up to the required ratings, much of which will be outside their direct control.
We’ve seen the short supply of tradespeople compared to demand with post-pandemic home improvements, and with that, not only comes a time delay to projects, but significant cost too. Whilst lenders can help with funding, getting the required support from the relevant trades to improve such a significant number of homes feels a real challenge, so it may help to consider extending the deadline to help make sure landlords have adequate time to become compliant.
There are other challenges that may lead to unintended consequences.
If some properties are too far down the energy ratings to be improved within the timescales, we may see an increased number of ex-rentals come to the market as investors see selling-up as an option. Equally, we’re already starting to see landlords turning to new-builds to avoid this issue altogether, but that could create wider supply problems for a housing market that is already struggling to build enough homes.
Whatever happens, it’s vital that brokers are aware of the looming dates and are having good quality conversations with landlords to ensure they can make an informed decision.
For the ad hoc, smaller landlord, the costs could most likely be swallowed as a one-off exceptional maintenance investment, however for portfolio landlords who have a large number of properties sitting at a D or E rating, the prospect of increasing to a C could be not only time consuming, but also incredibly costly.
Older properties, for example the Victorian two-up two-down terraced houses which make up a substantial buy-to-let stock, will often need the most energy efficiency upgrades and with a mooted cost of £8,000 per property, which has been discussed in the press. If you multiply that by 4, 10, 50, 100… we can see the financial crisis, and the knock-on effects that this potential new regulation would create.
If the buy-to-let investors do not have the cash with which to upgrade, we could see the market flooded with non-compliant properties where the buy-to-let investors simply roll their eyes for the last time, and give up on what used to be a fairly passive ‘pension’ pot. The layers of costs, works, enhanced regulations and threats of fines for non-compliance has become too much for many people.
We have been encouraging our landlord clients to act now and a lot are already making changes to increase their rating. In turn, this is enabling them to receive market leading rates as the property can be more desirable, and also take advantage of green mortgages which offer a better interest rate for A-C rated properties.
If the proposed legislation is indeed introduced, for those who can’t or won’t upgrade their buy-to-let properties, we could see the landscape for the smaller landlord start to look quite different on the next few years. We fear for the larger landlords who may have hundreds of thousands of pounds to find too, and it is this sector where we could see the largest disposal of buy-to-let assets in to the owner-occupier market.
This is where we fear for those who choose, or need, to rent rather than buy.