How to meet the new EPC rental rules on a budget

Puzzles Challenge yourself with today's puzzles. N ow you’ve got your head around the Renters’ Rights Act, it’s time to face the next challenge for private landlords: new eco standards. If a rental property does not have an energy efficiency performance certificate (EPC) rating of at least C (on a scale from A to G) by October 2030, the landlord could face a fine of up to £30,000 per property — or be banned from letting it out. Most commented 1 Kemi Badenoch woos Middle England back to the ‘no-nonsense’ centre ground Politics 431 comments 2 Christmas cards become ‘winter cards’ at primary school Scotland 171 comments 3 ‘Without violence, no one pays attention’: France returns to barricades Europe 183 comments 4 Deadly strike on Ukraine homes ‘was birthday gift for Putin’ Russia-Ukraine war 73 comments 5 Alex Cole-Hamilton defends ‘faked interviews with journalist’ Scotland 41 comments Two thirds of private landlords have no idea this is happening, and three quarters of the ones that are aware do not know when the deadline is, according to research from The Mortgage Works (TMW), the buy-to-let lending arm of Nationwide building society. Top stories 1 How American billionaires are shaping the future of warfare Technology Nearly two thirds of rental properties in England and Wales — 373,987 — need upgrading from an EPC D or E to be rented out legally by 2030, figures from buy-to-let lender Together show. So how much is all this going to cost? And are you going to have to cave in to Big Heat Pump? Advertisement ‘We find the most cost-effective way to be compliant’ I visited the family home of Joe Brennan in southwest London to find out. He is the head of compliance and certification at the retrofit specialists EcoApproach and has ten years of EPC assessment under his branded fleece. Top stories 1 What would UK look like with proportional representation voting? Politics 2 Our tower block caught fire — why are we still paying £1,500 a month? Mortgages 3 China came for Congo’s gold. Then Ebola struck Africa 4 My daughter works part-time — can she rescue her retirement? Ask Times Money 5 Three popular money rules that you should rethink Saving & Investing We are both almost horizontal trying to find a date stamped on the inside of the bay window of his Victorian semi. Joe Brennan’s home in southwest London “‘If the date is unknown or has rubbed off or is too hard to read, it is marked down on the assessment,” Brennan says. Can’t the landlord just tell you when they bought the window? “You would need to provide an invoice or some sort of documentary evidence of when they were fitted,” he replies. Brennan is full of these useful nuggets because his firm carries out Minimum Energy Efficiency Standard (MEES) assessments for private landlords. Advertisement When Brennan is looking around a property for a landlord, he’s trying to find the cheapest, easiest way to get to a C. “As a company, we obviously care about clean energy and we want everyone to move towards that,” he says, “but landlords are playing the compliance game, so we find the most cost-effective and least disruptive route to getting there.” Brennan’s firm carries out Minimum Energy Efficiency Standard (MEES) assessments for private landlords A standard EPC assessment is preoccupied with minimising running costs, so its recommendations tend to prioritise big ticket improvements that will lower energy bills. This is expensive for cash-strapped landlords and often doesn’t take the limitations of rental properties into account. Brennan’s EPC, for example, recommends installing floor insulation but it says nothing of the practical nightmare of ripping the floors up with tenants in situ. The standard EPC scores Brennan’s house at D 61 (out of 100), with potential to reach C 76 at a staggering estimated cost of £20,500 to £31,000. The report suggests external wall insulation (£7,500-£11,000), floor insulation (£5,000-£10,000 to gain just three points), and 2.5kW solar panels (£8,000-£10,000). His MEES assessment, however, maps out a cheaper, far less disruptive route, reaching C 74 for £5,736 through a handful of easy wins: adding 200mm of loft insulation; fitting fewer, more powerful 2.7kW solar panels; and installing thermostatic radiator valves (TRVs). Advertisement As a landlord, what should I do about the new EPC rules? Replacing all the lights with LEDs (two to three points), and draught-proofing windows (one to two points) are also simple yet cost-effective ways to boost an EPC score. Brennan’s house, a two-bedroom property with a small garden built in 1890, is typical of many of the rental properties in Britain. Solid-walled Victorian and Edwardian homes are the backbone of Britain’s private rented housing stock, with nearly half of those needing energy upgrades built before 1900 and 71 per cent before 1930. If you’re looking to get a better EPC score, don’t waste money on A-rated appliances, including integrated ones. Even the newly released plug-in solar panels won’t count, Brennan says. “There’s an assumption [in the assessment] that anything that isn’t bolted down could be taken with you. The number of times people have shown me heavy curtains and I’ve had to explain that, while they are lovely, they will have very little impact [on the energy rating].” Property newsletter Inside Britain’s most exclusive homes, plus what’s really going on in the property market. Sign up with one click You’ve successfully signed up to the Property newsletter Explore our newsletters An error occurred. Please use the link below. Property newsletter Explore our newsletters Brennan looks for the cheapest and least disruptive ways landlords can improve a property’s energy rating The MEES assessment typically takes between 30 and 60 minutes and costs from £60 to £140 depending on how large or complex the property is and how difficult it is to travel to. Advertisement As the 2030 deadline approaches, the increased demand could ramp up prices for contractors who carry out the work, and lead to long wait times for assessors. “Portfolio landlords will have this baked into their business plan, but it’s the smaller landlords who may accidentally drift into non-compliance that are in danger,” Brennan says. ‘Get a new gas boiler now’ And if that isn’t a compelling reason to act now, the new assessment methodology coming in October 2029 will be. Under the new system, called the Home Energy Model (HEM), properties will be judged on three categories: building fabric (insulation and window glazing, for example); heating and hot water (boilers or heat pumps); and “smart readiness” (smart thermostats or solar panels). How will the new EPC rules affect my flats with communal heating? Any heat source that is primarily fuelled by fossil fuels will be capped at a D for heating and hot water, making it far harder for the property to achieve a C overall. But if you get a C rating before HEM comes in, the certificate will be valid for the next ten years. Gas boilers, for example, at present get a high score on the EPC because they are cheap to run. “Under HEM, it will be capped at a D rating and you’ll have to get something like a heat pump or solar panels to make up for it,” Brennan says. “So if you’ve got an old gas boiler, getting a new one now is going to be the cheapest way to up the rating.” Advertisement Old stone cottages in rural or coastal areas that are heated using oil or electricity are most likely to fall foul of the new regulations, Together reports, alongside inner London terraced houses and mansion blocks due to poor or “non-standard” wall construction. If it’s habitable and has its own access point, then it needs an EPC rating, so any outbuildings that are rented out could need their own assessment. A landlord who owns a house and splits the floors up into self-contained flats will need an EPC for each flat, but a houseshare or flatshare, where multiple unrelated tenants live together in an HMO, only needs one EPC. Financing upgrades may be difficult for landlords with large portfolios of older housing, or “hobby” landlords with one or two properties and few savings for big upgrades. The cost of reaching EPC C is a major obstacle for 42 per cent of landlords, according to TMW, which is offering an Energy Efficiency Further Advance loan fixed at 2.99 per cent interest for two or five years (up to 75 per cent loan-to-value), around two percentage points lower than its standard rates for funding renovation work. TMW is also funding 1,000 free MEES assessments with EcoApproach for existing landlord customers with properties rated EPC D to G. Importantly, under the new rules, landlords will not be required to spend more than £10,000 (including VAT) to improve a property’s EPC rating, or more than 10 per cent of the property’s value if it is worth less than £100,000. A low D-rated property typically costs about £4,000 to bring up to standard Getty IMAGES “It’s quite rare that landlords will have to spend more than £10,000,” Brennan says. “We’re not getting anywhere near that spend on the properties we are assessing.” On average, he said, landlords whose properties are borderline C-rated spend a few hundred pounds to get into a safer score, but upgrading from a low D is about £4,000. The premium of a high EPC rating Doing the works could be the difference between a loss and a capital gain in the present market. TMW reports that A or B-rated rental properties command a 12.2 per cent price premium (and an 8.1 per cent rental premium) over D-rated homes, while C-rated properties achieve a 3.7 per cent price uplift. Should landlords sell up or splash the cash to meet Labour’s new eco rules? Dan Clinton, the head of buy-to-let mortgages at TMW, says: “We’re speaking to landlords looking to acquire properties all the time and they are looking [for upgraded properties].” Many banks now offer green mortgages that reward borrowers who make properties more energy efficient with lower rates too. “The challenge is that while some lenders offer attractive mortgages for properties with strong EPC ratings, they don’t always provide the funding needed to pay for the improvement work in the first place,” says Ryan Etchells, chief commercial officer at Together. At present most landlords use short-term bridging loans, but there are only a handful of lenders, Together being one of them, that offer second-charge loans that allow owners to borrow against the value of the property without affecting the existing mortgage. The forthcoming EPC deadline is forcing landlords like Tim Harrison, the owner of Unity Property Investment, to change their buying strategies. Tim Harrison is the owner of Unity Property Investment Harrison owns 11 rental properties that are scattered across England. All of them meet the EPC C threshold, apart from two run-down terraced houses he bought for below market value in Maidstone, Kent, that have EPC ratings of E and D. He says: “If you’re not getting a substantial discount on a property that requires energy improvement work, you should definitely be looking to acquire newer properties.” Read more expert advice on property, interiors and home improvement Harrison plans to carry out the EPC recommendations, rather than get an MEES, but expects a lot of them will be ticked off in the routine renovation work he will need to do to bring the properties up to scratch. He sees an opportunity for landlords who can afford to retrofit to buy low EPC-rated properties for below market value. “I do think [the EPC requirement] is a good thing, because overall it’s going to improve the general standard of rental property,” he says. “But it can be a roadblock to get another level of regulation, which is potentially leading landlords to sell [their properties] off. In the current climate, this means there are fewer and fewer properties available for rent and that’s putting [upwards] pressure on rental prices.”