Minimum EPC ratings scrapped: how could this impact property investment?
In a groundbreaking turnaround speech on Tuesday (20 September), Prime Minister Rishi Sunak reversed a number of the government’s net zero measures – including plans to force rental properties to become more energy efficient.
Since April 2020, properties in the private rented sector in the UK have had to achieve energy performance certificate (EPC) ratings of at least an ‘E’ in order to be legally let out, unless the owner has secured an exemption in certain circumstances.
There has also been the expectation that this minimum level would be raised for all tenancies from 2028, which would have meant that all properties in the private rented sector would have had to achieve a rating of ‘C’ or higher, unless the owner could prove that they had spent £5,000 on upgrade work and it still did not achieve the desired level. Understandably, this has caused many landlords and property investors some level of concern, as the majority of homes across the UK have a ‘D’ rating.
As of Tuesday, Prime Minister Rishi Sunak has scrapped this policy, after being accused of ‘dithering’ over it for a number of years and causing even more uncertainty among investors and landlords.
He did add, though, that the government would “continue to subsidise energy efficiency” as it is “crucial to making our homes cheaper to heat”, but that it would “never force any household to do it”. To back this up, Sunak also pledged a 50% increase to its grant funding for those who do wish to upgrade their boilers to more energy efficient heat pumps, with households now being able to claim up to £7,500 towards their costs.
Is the EPC turnaround good or bad for the industry?
Unsurprisingly, Sunak’s announcement yesterday has been met with very mixed reactions. Some are scathing of what they perceive to be the government’s lack of commitment to hitting its net zero targets and tackling climate change, while others agree with his economic reasoning for making the changes.
In the private rented sector, the quality and standard of properties available has been continually improving over recent years, and this has been partly spurred on by the previous increase to minimum EPC ratings, which ousted a number of ‘rogue’ landlords letting out substandard properties. The rise of the ‘build-to-rent’ sector, involving purpose-built rental accommodation to a higher standard and with better amenities, has also created more competition among investors to offer a high-quality home for tenants. For many households today, renting is a preferable lifestyle choice, as well as a necessity before getting onto the housing ladder for others.
As energy bills have skyrocketed alongside the cost of living, finding a rental property that is more energy efficient and therefore cheaper to run has become a priority for thousands of tenants. As a result, more property investors and landlords than ever now cite EPC ratings and energy efficiency as one of their top considerations when buying property.
Moreover, rents have increased significantly over recent months, and many argue that, had landlords been forced to invest significant amounts of money upgrading their properties, this cost would have ultimately been passed onto the tenant.
A number of landlords have unfortunately been forced to sell low-rated properties because they could simply not afford the cost of upgrading them, and some of these properties have been removed from the rental sector altogether. This has led to a decrease in stock available in some areas, which, again, negatively impacts tenants who are seeking homes.
Arguably, many of the trends we have seen towards people favouring energy efficient properties – both to invest in and to live in – seem unlikely to be reversed, despite the government’s turnaround. New-builds with top EPC ratings remain a more future-proof option than a poorly insulated, older property, and will continue to hold more sway for tenants who are keen to keep their energy bills as low as possible.
Comments from the industry
A number of industry insiders have given their views on the government’s latest U-turn, with some offering support while others are keen to stress that improving energy efficiency should still be high on the agenda within the property market.
Ben Beadle, CEO of the National Residential Landlords Association (NRLA), said: “The NRLA wants to see all properties as energy efficient as possible”.
“However, the uncertainty surrounding energy efficiency policy has been hugely damaging to the supply of rented properties. Landlords are struggling to make investment decisions without a clear idea of the government’s direction of travel”
“It is welcome that landlords will not be required to invest substantial sums of money during a cost-of-living crisis when many are themselves struggling financially. However, ministers need to use the space they are creating to develop a full plan that supports the rental market to make the energy efficiency improvements we all want to see”
“This must include appropriate financial support and reform of the tax system which currently fails to support investment in energy efficiency measures.”
Dan Wilson Craw, deputy chief executive of Generation Rent, took a different stance: “Cancelling higher standards for rented homes is a colossal error by the government”
“Leaving the impact on the climate to one side, it makes the cost-of-living crisis worse and damages renters’ health. One in four private renters lives in fuel poverty and, without targets for landlords to improve their properties, they face many more years of unaffordable bills”
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