Since the COVID-19 pandemic, many residential landlords have had to proactively offer their tenants rent or rental payment holidays lasting a few months, due to concerns around furlough, job security and redundancy. Also, landlords have spent time and money in renovating their rental properties with some having to use credit cards, short-term finance products or their savings to finance the refurbishments. Buy-to-let property investors will also face some challenges this year including the proposed energy efficiency changes which will be the focus of this blog.

In the UK, Energy Performance Certificates (EPCs), introduced in 2007, are an essential part of buying, selling, and renting homes as they rate a property’s energy efficiency. By law, all domestic and commercial buildings available to buy or rent in the UK must have one.

What is an EPC Rating?

Each property is given an EPC rating which is a review of a property’s energy efficiency. The scale ranges from an ‘A’ rating being the most energy-efficient, with a ‘G’ rating being the least energy efficient. Each certificate lasts for 10 years.

New Energy Performance Certificate (EPC) regulations

Currently, domestic private rental properties must meet a minimum level of energy efficiency which is an EPC rating of E.

However, new Energy Performance Certificate (EPC) regulations will mean that from 2025 landlords cannot rent their property without an EPC rating of C or above.

Existing tenancies will have until 2028 to comply. These changes will ensure that rental properties are energy-efficient and assist in meeting the Government’s net-carbon zero targets.

How does this impact landlords?

For landlords, unless they want to risk a fine for non-compliance or not be able to rent their property legally, they will be forced to improve the rating of the property.

For properties which may have to make the leap from an E rating to a C rating or higher, such home improvements could be an expensive investment. A few ways to improve a rating include insulating walls and the roof, upgrading the heating system to something more energy-efficient, and double or triple glazing windows to prevent draughts.

With the inevitable rise in energy bills this year, making changes to a property to improve its energy efficiency will, not only help the environment, but could also save tenants a significant amount of money. A better EPC rating could contribute to lowering energy bills, increasing comfort at home, and reducing overall carbon footprint. Raising the minimum EPC rating to C or above will also help fight fuel poverty and contribute towards raising the standard of living across the UK.

Nonetheless, the proposed changes have raised concerns, given its impact on a considerable number of properties and the ability of landlords to pay for such home improvements in the aftermath of COVID-19.

For those landlords who own older properties – which are typically less energy efficient – it may be harder to improve the rating. This could mean that by 2025 some properties will be ‘unrentable’. This will mean a shortage of properties in the private rental market. Around 4.4 million households were privately rented in England in 2021 according to statistics from www.statista.com.

There are close to 13 million homes in England and Wales currently with an EPC rating of D or below, according to data from the Ministry of Housing, Communities and Local Government.

Some buy-to-let investors are looking to switch strategy with holiday, or short-term letting becoming one of the key areas of interest. Tax is a big reason for this change in strategy. Subject to meeting certain criteria, properties used as holiday lets are still able to deduct all their mortgage interest and other finance costs from their turnover before calculating the tax liability, which used to be the case with buy-to-let properties.

According to a report by letting agent professional body ARLA Propertymark last year, nearly 50,000 properties have been changed from long-term to short-term letting.

As more landlords look to diversify their portfolio with holiday lets, lenders must be responsive to the needs of the market to support them.

Mortgage advisers can help buy-to-let clients in not only accessing the right product and rate, but also in providing valuable insight on the market to help inform purchase decisions.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.