Emma Cox
Managing director of real estate,
Shawbrook
The need to improve the energy efficiency of the UK’s private rented sector (PRS) is an issue that is not going away.
Landlords are already banned from letting properties with an energy performance certificate (EPC) rating of F or G, and it’s likely these standards will become tougher.
The government has previously set out proposals to change the minimum EPC for rental properties in England and Wales to a C from 2025. This target has not yet been put into law but we need to make improvements to safeguard the future of the sector.
This is not straightforward. The PRS is made up of homes of all ages, construction types, values and geography. These properties – home to millions of tenants – are owned by landlords with large and small portfolios, all of whom need certainty, support and guidance to make the right changes.
Only by working together can the housing sector play its part
It’s encouraging to see the whole sector taking big steps towards improved awareness of energy efficiency. That was a finding of our second major report* on the EPC system, published in October. We commissioned research with thousands of landlords, tenants and brokers to build a picture of the challenges, barriers and catalysts of change.
These surveys were carried out over the summer and the pressure on gas and electricity bills has led to a renewed focus on energy efficiency. A fifth of tenants have spoken to their landlord about making improvements. Nearly 60% said they would be less likely to view a property with a rating of D or below.
Cost-of-living crisis
The cost-of-living crisis is prompting landlords to install upgrades, with half making improvements in the past six months. They are seeking to both reduce bills and make their properties more attractive to tenants. Around a quarter said they wouldn’t have made the changes without this cost-of-living trigger.
It is clear that the industry and policymakers can go further. It’s encouraging to see more mortgage discounts linked to EPCs
While this represents significant progress in the conversation around EPCs, huge challenges remain. Only a quarter of landlords’ portfolios contain homes that all meet the EPC target of C. Nearly four in 10 have properties that are all rated D or below, a proportion rising to almost six in 10 in London.
Knowledge of regulation is also improving but has further to go. Eight in 10 landlords have heard about the 2025 EPC proposals, but of that group more than a third admit to knowing only ‘a bit’ about it. Only 11% know nothing about the system – down from 15% in our last survey in November 2021.
Affordability
Our research is also clear on the key obstacle to improvements: cost. More than four in 10 landlords see affordability as the main barrier to improving their property’s EPC rating by 2025, rising to more than half with only one home in their portfolio.
Around a quarter of landlords said they wouldn’t have made the changes without this cost-of-living trigger
As part of the government’s proposals, the current cap on improvement costs – that is, the maximum a landlord has to spend on meeting the C rating – could be raised from £3,500 to £10,000. Seven in 10 landlords believe this level is too high. Industry groups are concerned that these costs represent a far greater proportion of property values in some parts of the country than in others.
It is clear that the industry and policymakers can go further. It’s encouraging to see more mortgage discounts linked to EPCs. Four in 10 landlords told us they would like to see more. Lenders can also help overcome some key funding barriers identified in our research, providing loans, second-charge mortgages and bridging products, for example.
The regulatory outlook remains unclear, and the latest change in prime minister could further delay EPC proposals becoming law. Some landlords may hold off on work until the regulatory framework is confirmed. While we know which way the wind is blowing, it’s only fair they know where they stand.
Landlords need certainty, support and guidance to make the right changes
Only by working together can the housing sector play its part in reducing energy consumption, building a more sustainable future and safeguarding the long-term future of the PRS.
At Shawbrook, we remain committed to working with other stakeholders to better understand the situation, move the conversation forward and make real progress towards these goals.
*’Confronting the EPC Challenge’ is available at property.shawbrook.co.uk.
