An absence of direction on the proposed changes to EPC requirements is contributing to a lack of action
The following article was written by Richard Rowntree (pictured), managing director for mortgages, Paragon Bank.
Reducing the negative impact of our homes on the environment is crucial if we’re to create a more sustainable future. While progress has been made, an absence of direction on the proposed changes to EPC requirements is contributing to a lack of action.
Much has been said about the proposed changes to the Energy Performance Certificate (EPC) ratings of private rented sector properties and it’s an issue that has been on our radars for some time. Despite this, there are signs that there is still much to be done if the sector is to overcome the significant challenge of ensuring all rented homes are rated EPC ‘C’ or above by 2028.
Find out more: How much are landlords willing to spend to meet EPC requirements?
One of the primary reasons for this is the scale of the issue.
Corresponding to the rise in buy-to-let mortgage lending, noteworthy improvements have been made to the energy efficiency of homes within the private rented sector. Between 2009 and 2019, the proportion of homes with EPC ratings of ‘A’, ‘B’ or ‘C’ more than doubled, increasing from 13.5% to 38.3%, English Housing Survey (EHS) stats show.
This shows that although progress has been made, a substantial number of PRS properties currently fall short of the standards proposed by the Government.
Central to this is the profile of PRS stock.
With construction techniques, technology and materials all improving over time, age is considered the biggest single factor in the energy efficiency of homes.
EHS data reveals that just short of a third (32.4%) of PRS homes were built before 1919. For comparison, 19.9% of owner-occupied properties and 6.5% of homes in the social housing sector date back to the same period.
With landlord research also revealing how terraced houses, many of which were built during the Victorian era, are the most common buy-to-let property, owned by just under one in six, a picture of the scale of the challenge starts to emerge.
With older properties less likely to be able to meet the proposed standards, it would seem logical for investors to stop buying them and instead opt for newer, more energy efficient homes.
However, we’re not seeing significant changes in buyer behaviour.
Industry data shows that terraced houses continue to be the dominant type of home purchased by landlords, with a strong increase since October last year.
Up until the end of last year when they were marginally overtaken by semi-detached houses, terraced homes have consistently been the most popular property type buy-to-let investors also plan to buy going forward.
So, why are landlords continuingly, increasingly in fact, buying homes that typically have poorer energy efficiency and can be difficult to upgrade?
I feel that tenant demand is a big factor. Older properties tend to have larger rooms and more outdoor space, things that have increased in importance as the pandemic has given rise to home working and placed added emphasis on wellbeing.
In addition, the current stock shortages could mean that there simply aren’t enough newer properties for landlords to buy, while new builds generally carry a price premium. There is also evidence to suggest that a lack of awareness of the proposed changes is a contributing factor.
We can see that landlords are aware and adhere to the current rules on the energy efficiency of their buy-to-let properties, the Minimum Energy Efficiency Standards (MEES) regulations. The results of a survey of over 700 landlords showed that 97% have an awareness of MEES regulations, with the majority, 88%, indicating that they are fully aware and understand their responsibilities, while 9% said they were aware but didn’t understand the details. The remaining 3% of landlords had no awareness of the legal requirements.
But a similar survey of over 800 landlords showed that awareness of the proposed EPC changes is lower. Just over four in 10 landlords (42%) stated that they had no awareness of the proposed changes, with an additional 28% saying that they were aware but didn’t understand the details.
With so many old properties likely to require costly adaptations to bring them up to what is expected to be the required standard, there will be substantial demand for materials and tradespeople, often in short supply of late, as well as trained professionals to assess properties.
These are just a few examples that highlight how meeting any new regulations will require time, money, knowledge and lots of effort – the expected deadline of 2025 for all new tenancies, and 2028 for existing ones, suddenly looks very close.
While I appreciate that developing policy that has such significant implications should be well thought out, which clearly takes time, and it is encouraging that the Government is engaging with the sector, I feel the current ambiguity contributes to a lack of urgency and action. The sector needs clear and definitive guidance from the Government to avoid a scramble to meet the new standards ahead of that deadline.
