With energy efficiency becoming increasingly relevant in recent years due to the government’s commitment to Net Zero by 2050, Minimum Energy Efficiency Standards (MEES) were introduced in April 2018 to ensure all properties sold or let in England and Wales meet an EPC rating of E.
In addition to that change, letting properties below an E was outlawed in April 2020, effectively regulating our residential built environment. With the Office of National Statistics reporting that households accounted for a staggering 26% of the UK’s greenhouse gas emissions in 2022, the seriousness with which the government is tackling the issue seems long overdue.
Following a consultation in December 2020, the government announced upcoming changes to the MEES for England and Wales that require all new rental properties in both countries to meet a minimum EPC rating of C by 2025 and all existing properties to do so by 2028.
But what does that mean for landlords?
What Exactly is an Energy Performance Certificate?
Energy Performance Certificates (EPCs) contain detailed information about a property’s energy usage and costs.
After booking an inspection from a Domestic Energy Assessor that factors in elements like windows, roofs, walls, boilers, insulation and lighting, property owners can receive an EPC rating of their property’s energy efficiency from A (very efficient) to G (inefficient). This EPC is issued for up to 10 years and would only need to be renewed in the event of a house sale or a new tenancy.
Since October 2008, all rental properties in England and Wales must provide tenants with a valid EPC certificate either before the beginning of their tenancy or, in the event of an EPC certificate getting renewed during the finalisation of a tenancy contract, at the earliest possible opportunity.
Though most landlords, renters and property owners should be familiar with EPCs and the concept of energy efficiency, the increased global focus on carbon emissions means they may now be more of a talking point than ever before.
Will EPC Changes Affect Landlords?
Yes, the new minimum EPC ratings will impact landlords.
According to a recent survey by Rightmove, 29% of UK landlords did not know if their properties were below a C, despite upcoming changes to EPC requirements being one of their top 5 concerns in 2023.
Fortunately, the team at Concept Capital Group is here to help with three changes every current and future landlord should look out for to keep their homes energy efficient and EPC compliant.
1. Increased EPC Fines
One of the changes introduced to encourage landlords to make the appropriate improvements to existing properties is an increase in the amount they can be fined for failing to bring rental properties up to a C rating.
While the previous maximum fine for not having a valid EPC was £5,000, the government has announced plans to raise that fine to £30,000 from 31st December 2025 for new rental properties and 31st December 2028 for existing tenancies.
The current maximum penalty charges are as follows:
- £2,000 – Renting out a non-compliant property for less than 3 months
- £4,000 – Renting out a non-compliant property for 3 months or more
- £5,000 – Failing to make an EPC available to a prospective buyer or tenant
Fines are issued for each breach of government laws regarding EPC, with each property treated individually. That means a landlord owning multiple properties could receive several hefty charges for non-compliance, especially once the fine for not having a valid EPC rises to £30,000.
To avoid incurring penalties, landlords need to be aware of the new standards of energy efficiency and the steps they must take to bring their properties up to the new benchmark.
2. Higher Costs and Caps for Reaching a C Rating
For landlords who want to keep their properties compliant with the new EPC and MEES standards, the costs of doing so may not be easily understood. Booking an energy assessment survey from a Domestic Energy Assessor can give landlords uncertain of how to make their properties more energy efficient some guidance on what they can do and how much it might cost.
The current maximum cost cap on a property’s energy efficiency improvements is £3,500, which includes any funding or grants provided by governments, local authorities or even energy companies. The underlying problem, however, is that this cap was introduced with a minimum EPC rating of E in mind.
Government estimates suggest the average cost of raising a property’s EPC rating to a C for landlords is roughly £4,700, with the sum for older or larger homes being much higher. As such, the cost cap for energy efficiency improvements may be raised before 2025, forcing landlords to choose between spending more on reaching new EPC standards, selling their properties before 2025 or being fined.
3. New Funding Sources
EPC compliance is not all doom and gloom for landlords. Since the government’s commitment to reaching Net Zero, several third-party funding schemes have been introduced to help cover the increased costs involved in achieving a C rating.
Unlike self-funding, the cost cap on energy improvements does not apply to third-party funding, meaning landlords could benefit from much more significant renovations.
Energy Company Obligations (ECO)
Traditional examples of third-party funding include ECO, where energy suppliers give eligible customers the means to make their homes more energy efficient. Several suppliers offer ECO schemes to those in “fuel poverty” (E-G rating) following assessment.
The government has announced an upcoming fourth edition of the ECO, that promises to “upgrade around 450,000 homes, most of them to EPC band C” leading up to 2028.
Boiler Upgrade Scheme
To help implement the government’s recent Heat and Buildings Strategy, a new Boiler Upgrade Scheme for England and Wales was introduced in 2021. The scheme offers property owners a one-time grant for each property to cover the costs of installing low-carbon heating systems. The grants offered are:
- £5,000 towards an air source heat pump
- £5,000 towards a biomass boiler
- £6,000 towards a ground source heat pump (including water source heat pumps)
For landlords with multiple properties, this scheme can represent tens of thousands in savings, a level of funding that can make all the difference when pursuing energy improvements.
VAT Relief on Energy-Saving Materials
The government is offering zero-rate VAT on installing energy-saving materials in residential properties until 31st March 2027. This accounts for both the materials used and any ancillary supplies, like the insulation needed to build an insulated roof or the costs associated with installing a hatch to a new loft.
Green Deal Loans
While the original Green Deal scheme closed in 2015, property owners can still seek loans for improving the energy efficiency of their homes through government-registered Green Deal providers.
These loans allow homeowners to improve the energy efficiency of their properties while paying them back through the energy bill deficits those improvements supported. Loan payments generally do not exceed the savings made on energy bills, but interest rates and other considerations when taking out a loan are still a factor.
Are Modular Homes EPC Compliant?
For a future-proofed property investment that covers you against the upcoming changes to minimum EPC requirements and most other market or regulatory shifts that impact traditional housing, we offer fully managed, high-quality modular homes that take the guesswork (and legwork) out of being a landlord.
All our properties are built to the British Standards Institute’s (BSI) BS3632 specifications for permanent residence, guaranteeing the inclusion of:
- Double glazed windows
- Increased wall, flooring, and roof insulation
- A-rated appliances, including low-energy lighting where applicable
- Alternative and renewable energy sources
This not only makes them more energy efficient than most alternative homes on the market but also most traditional brick-and-mortar homes.
Our property and tenancy management services also mean that we take care of day-to-day concerns like sourcing tenants, collecting, and depositing rent to your account, carrying out repairs and maintenance, and staying informed about any outside influences that could affect your investment.
With no void periods to worry about, we can even ensure your monthly rental payments will maximise your return on investment with a minimum of red tape.
For reliable property investment in a Net Zero world, contact our team today.