What do the proposed EPC changes in 2025 mean for landlords?
There are concerns amongst landlords regarding upcoming changes to minimum Energy Performance Certificate (EPC) standards. In light of these recently announced changes - that have yet to be confirmed - to EPC laws in England and Wales, we have examined what landlords can do to improve their properties' energy efficiency by 2025.
In England and Wales, renting a home through the private rental market has long been a popular investment option and a way of generating income. However, the minimum energy performance required to legally rent out a residential property (domestic property) will soon be affected by potential and proposed changes to EPC laws, scheduled for effect in 2025.
We have summarised what the proposed changes to the EPC rental laws mean for landlords and the best way to ensure that your rental properties comply with the law if or when these changes come into effect.
What are the new proposed EPC changes that landlords should be aware of?
In order to let a privately rented property out on a new assured tenancy (expected to take effect in England and Wales in 2025), landlords will need to ensure that their rental property has at least an EPC C rating. As a result, properties that receive a rating of less than a C in an energy performance survey will potentially no longer be permitted to be legally let to new tenants from 2025 onwards.
If the rules do change, the current tenancy on the property predates the implementation of the new EPC laws, landlords with domestic rental properties that meet the legal threshold of an EPC E or higher will be permitted to continue renting the property for a limited time.
As a result, a landlord would legally be able to rent out their property until 2028 as long as the same tenant continues to reside in the property. Even if the property falls below the new EPC C minimum threshold in 2025, this rule would still apply.
How would these changes in EPC legislation affect you as a landlord?
In England, approximately 40% of homes currently have an EPC rating of C or higher, and approximately 70% of landlords own rental properties with an EPC rating of D or lower.
Up to 20% more value can be added to a rental property by making it more energy efficient, making it more appealing to tenants and potential buyers. According to NatWest and S&P Global, 40% of prospective homebuyers consider the EPC rating to be 'very important.'
In order to comply with the previous EPC legislation that came into effect in 2018, some landlords will already have invested in bringing their property up to an E standard.
Properties with an EPC rating below C are also likely to become less appealing to tenants as tenants become more aware of the legislative changes and rising energy costs. As landlords rush to sell their properties rather than upgrade them, we may also see an increase in the number of homes for sale. If this were to take place, there would likely be a shortage of rental properties, leading to an increase in the rents paid for privately rented homes, which would be beneficial to landlords who own properties with an EPC C+ rating.
How much will it cost to upgrade my property?
The amount of money needed to bring your home up to EPC C standards depends on how energy efficient it is now and what specific improvements are needed to make it better.
It is unlikely that bringing homes up to the new proposed EPC C minimum standard will be cheap or non-invasive. The costs could easily exceed four figures for many landlords because the work can only be done if the property is rented out.
According to research undertaken by Shawbrook Bank, landlords' energy improvement projects have cost an average of £8,900, which is £3,000 more than what landlords had anticipated.
This discrepancy between the perceived and actual costs of improving a property's energy efficiency can be partially attributed to increases in the prices of labour and materials, as well as delays in the supply chain as a result of inflationary price increases and the conflict that followed between Russia and Ukraine.
What should I do to raise my EPC rating to C?
It is advisable to engage the services of an EPC assessor to carry out an internal and external inspection of your property and ascertain the current value of its EPC. Even if you already have an up-to-date EPC, purchasing a new one is still a good idea, especially if your property has undergone renovations since it was issued.
A chartered building surveyor can give you an estimate of the work required to bring your home up to spec and how much it will cost once you have your EPC.
You will be able to choose the best course of action if you follow these two easy steps; whether to sell before the market becomes saturated and there is no longer a demand for properties with lower EPC ratings or to future-proof your portfolio before others do the same.
How Sandersons can help you
Our understanding is that these legislations are likely to be going ahead, although there is yet to be confirmation on this. The advisory would be to do what you can to improve your energy rating, because it can only currently be seen as a good thing to be prepared for, if or when the rules change in the future. Although you may have a tenant in situ when the legislation changes, they may only need to give 1 months notice (if periodic tenancy) or even none to leave at the end of a fixed term which could give you a longer void period while you organise the efficiency rating work to relet the property.
We currently recommend heading over to the National Residential Landlords Association (NRLA), and familiarise yourselves with it as you begin your preparation. If it doesn't happen in 2025, it most certainly will at some point.
Preparing now (if it does all go ahead), is key, and we are here to assist you in the process of improving your rating.
If you have any queries about these upcoming EPC changes, please do not hesitate to contact us on 01227 784 784.
