Will new energy efficiency rules affect your property investment?

The UK’s stance on green energy and environmental issues seems uncertain at the moment as Prime Minister Rishi Sunak wavers on his party’s eco policies, so what does this mean for your rental property?

While awareness is growing about the rules surrounding minimum energy efficiency standards (MEES) for rental homes, a large number of property investors and buy-to-let landlords are still in the dark about this very important issue. Arguably, this could be largely down to the fact that there remains a high level of ambiguity over whether proposed new rules will actually come to pass.

Here, we go over what you need to know about current and potential future requirements for any property you plan to let out, and what your options are when it comes to improving your rental property’s energy efficiency.

The importance of EPCs

What property investors need to know at this stage is that, in order for a property to be let out legally, it must achieve an energy performance certificate (EPC) rating of ‘E’ or higher, and this is the case for both new and existing tenancies.

An EPC is a legal requirement for any residential property that is let out in the UK. It is issued by an official assessor, who looks at the property’s energy performance and its carbon dioxide emissions. Essentially, it can be a good indicator of how expensive the property’s energy bills might be, and how environmentally friendly it is. They will take into account things like windows (double or single-glazed), boilers and heating systems, and insulation, among other factors.

An EPC lasts for 10 years before renewal is needed, unless you no longer let the property out. Along with receiving a rating of between ‘A’ and ‘G’, you will also receive a recommendation report with suggestions on how you can improve your property’s score.  This might involve installing LED lighting, replacing a boiler or radiators, or improving the thermal efficiency of your windows, for example.

Improving energy standards on the cards

Many of you will have seen in the news that there are currently proposals for the minimum EPC rating on rental properties to be increased. At the moment, this would mean that all new tenancies from 2025 and all existing tenancies from 2028 would need to achieve a minimum rating of ‘C’ in order to be let out.

However, as the mood around green energy policies under Rishi Sunak’s government continues to change, with Sunak recently stating that achieving the UK’s net-zero targets should not “unnecessarily give people more hassle and more costs in their lives”, this opens up the possibility that this target could change, or even be scrapped. At the moment, the Bill is at the second reading stage, so it still has a way to go before becoming law.

That is not to say that property investors shouldn’t be aware of the proposal, though, and in fact large numbers of investors and landlords are already taking action to ensure they stay ahead of the rule change. For some, this means selling older, less energy efficient properties and investing in newer ones. For others, retrofitting in order to boost their existing properties’ EPC rating is the preferred option.

What about the cost? Help and exemptions are available

This is the real issue for many landlords in the market at the moment, with the majority of properties across England and Wales sitting on an EPC rating of ‘D’, and many others only achieving an ‘E’ rating.

The cost of replacing the windows and heating systems and improving insulation can be high. However, it is likely that tenants will increasingly be attracted to the most energy efficient properties on the market in order to keep their bills down, so improvements could pay off in the long run.

It is important to note that landlords are not expected to spend an infinite amount of money to get their properties up to scratch. There is a cost cap in place of £3,500 including VAT on energy efficiency improvements. If your property still does not achieve the minimum EPC rating required after spending up to this amount, you can apply for an ‘all improvements made’ exemption, and you can then continue to let out your property legally.

There is also government-backed help available, such as the Boiler Upgrade Scheme for those who are eligible. Zero VAT is also applied to the installation of certain energy-saving materials and supplies, and Empty Property Grants for those looking to upgrade an empty home.

Be prepared

Whether or not the current proposals to increase the minimum EPC rating to ‘C’ on rental homes comes into force, or are delayed until a later date, change is already underway in the property industry. Building standards are more focused than ever on energy efficiency, and property investors are increasingly seeing the value in investing in higher rated properties to help future-proof their assets.

Aside from any unique exceptions, Prime Property Agents will not be offering any investment properties with low EPC ratings, ensuring that investors are purchasing assets that are going to be in high demand from tenants and future buyers alike.