There are some huge changes that will affect all homeowners and we believe it is important to be as prepared as possible. In 2018, EPC requirements changed for landlords through the introduction of a minimum energy rating of ‘E’ or above for new tenancies. Now, this rule applies to all tenancies, not just new ones.
In 2021, changes to the Minimum Energy Efficiency Standards were also announced that will affect landlords and rentals from 2025.
In this blog, we recap the changes that happened in 2020, as well as everything you need to know about the latest updates for EPCs, what your legal responsibilities are, what happens if your property doesn’t have an EPC and how you can plan for these.
What are the current EPC requirements?
Since October 2008, rental properties in England and Wales have required an Energy Performance Certificate (EPC).
On April 1st 2018, the Minimum Energy Efficiency Standards came into force. This required all properties being let or sold in England and Wales to have a minimum EPC rating of ‘E’ or above.
How have EPC requirements changed?
From 1st April 2020, the Minimum Energy Efficiency Standards apply to all existing tenancies – not just new ones or renewals.
If your property doesn’t have a valid EPC rating of ‘E’ or above by this date, it cannot be legally let.
What are the new EPC regulations for landlords in 2022?
After a consultation in December 2020, the government announced changes to the Minimum Energy Efficiency Standards for England and Wales. The government proposal includes that all rental properties will need an EPC rating of ‘C’ or above by 2025. Similar to the previous changes, the new regulations will be introduced for new tenancies first, followed by all tenancies from 2028.
The regulation changes hope to make homes more energy-efficient and reduce carbon emissions as part of the government target to be net-zero by 2050.
The penalty for not having a valid EPC will also be raised from £5,000 to £30,000 from 2025.
What is an EPC?
An Energy Performance Certificate gives detailed information about your property’s energy efficiency and carbon dioxide emissions. To receive an EPC, you must have an Energy Assessment Survey carried out at your property.
Some of the things your assessor will take a look at are:
- Roofs, walls and insulation
- Boilers and heating systems
- Renewable energy devices (solar panels or wind turbines)
- The building measurements
- The year the property was built
Once your assessor has performed a full inspection, they will put together your EPC and grade your property’s energy performance: ‘A’ being the most efficient and ‘G’ being the least.
How can landlords prepare for the current EPC requirements?
If you haven’t got an EPC yet, you’ll need to book your Energy Assessment as soon as you can, it is a legal requirement. The inspection itself will only take around 30 to 40 minutes, but if your property doesn’t meet the EPC requirements of ‘E’ or above, the suggested improvements made by your assessor could take weeks to carry out.
As a landlord, you have a legal responsibility to read through recommendations in your EPC report and ensure your property has the legally required rating. Landlords may spend up to a maximum of £3,500 on these energy efficiency improvements, including any funding or grants given by the government, local authorities or energy companies.
If your suggested improvements exceed £3,500, you can apply for a high-cost exemption via the PRS Exemptions Register.
How can landlords prepare for the new 2025 EPC regulations?
Achieving an EPC rating of ‘C’ will be more difficult than an ‘E’, particularly for older properties. The government has recommended a “fabric first” approach, covering wall, loft and floor insulation. The installation of a smart meter is also recommended.
Energy performance investment is currently capped at £3,500 for landlords, but as the higher EPC rating will require a greater investment, the cap will be raised to £10,000. The government estimate that on average the improvement needed to reach an EPC rating of “C” will cost landlords around £4,700. Landlords are encouraged to apply for the Green Homes Grant, which will fund at least two-thirds of the cost of hiring tradespeople to upgrade the energy performance of their PRS properties up to a contribution of £5,000.
What happens if I don’t have an EPC?
Your property cannot be legally let if it doesn’t have a valid Energy Performance Certificate. If you are found to have no EPC, you may be fined up to £5,000 by your local authorities.
When the regulations are updated in 2025, the penalty for not having a valid EPC of ‘C’ or above will be raised to £30,000.
How to Prepare for the new changes?
With the new changes coming into play from 2025, it is best to start planning as early as possible. At the moment you will be able to get a mortgage on any property that has an energy E rating or above. A lot of lenders are now reviewing ratings as part of their lending assessments. If you have a portfolio of properties then the cost to get these properties to a C rating could be astronomical. Our advice would be to review your current EPC’s and get an assessor to determine what work is needed to pull the properties in line with the new requirements. You can then run a cost analysis to see if the changes are viable to your portfolio. If you leave this too late, your properties may become un-mortgageable, which means the values will decrease dramatically. If we have learnt anything in property, it is the fact that value from investment property assets is driven by leverage availability.
How Can Mesa Financial Help?
As a business we have been working very closely with landlords to make them aware of the upcoming changes. We have also been reviewing existing lending and making sure our clients are first of all secure with their lenders for the foreseeable future, but also making sure they have access to the liquidity they need to make the necessary improvements. The sooner this is addressed for landlords the easier it will be when the changes come into effect.