Expert discusses implications of proposed EPC changes
Landlords and brokers will now be largely aware of proposed Energy Performance Certificate (EPC) changes.
While confirmation from the government on the exact details and deadline for this new regulation is still outstanding, Daryl Norkett (pictured), head of real estate proposition at Shawbrook, said it is clear the changes have the potential to impact landlords significantly. However, Norkett said many landlords, and indeed their brokers, have been unsure when and how to act.
Mortgage Introducer sought insight into the implications of the proposed EPC changes, associated costs, available finance options for landlords, as well as the role of mortgage brokers in assisting landlords with meeting the upcoming EPC guidelines.
Investment will be needed
Under the proposed EPC regulations, Norkett said, all newly rented properties may soon be required to achieve a minimum EPC rating of ‘C’ or above.
“The same requirement would also apply to existing tenancies and is now expected to start from 2028; currently, properties only need to meet an EPC rating of ‘E’ or above,” he explained.
Norkett added that these proposed changes mean landlords would have to make potentially costly improvements to their properties to enhance its energy efficiency. However, Norkett said many are unaware of the potential costs and that failure to act could lead to their properties being deemed ‘unrentable.’
Even with a delay to the proposed deadline, Norkett said the EPC proposals pose a significant challenge for landlords, particularly those with older properties.
“A considerable portion of properties in the private rental sector were built before 1940, and older homes often have lower EPC ratings,” Norkett added.
Lack of awareness, coupled with uncertainty about the costs involved, Norkett said, increases the risk of landlords failing to meet the deadline and facing a loss of rental income.
How much is needed to afford EPC changes?
Norkett said that the cost of improving properties to meet the new EPC requirements is a concern.
While the current regulation sets a cap of £3,500 for upgrades to achieve an EPC rating of ‘E’, he said the proposed changes suggest increasing that cap to £10,000 for a minimum rating of ‘C’.
“Affordability is a significant barrier,” Norkett said. There are concerns, he added, that landlords are underestimating the expenses, especially considering outside factors like supply chain disruption and rising labour costs.
With inflation still high, Norkett said many could also put off improvements until the economic picture becomes clearer – leaving a rush as the deadline nears.
Funding options for EPC changes
Landlords have been using various approaches to cover improvement costs, but Norkett said few have explored specialist funding options.
“Cash savings (57%), credit card borrowing (30%), and personal loans (24%) have been common sources for funding property improvements,” he said.
However, Norkett said landlords with substantial portfolios or significant improvement requirements should consider finance options tailored to their needs.
“Mortgage brokers play a crucial role in advising landlords on the impending EPC changes and informing them about available finance products,” Norkett said.
He believes that brokers can bridge the knowledge gap by providing information, guidance, and assistance about the options for necessary property improvements.
“Bridging loans offer quick access to funds for short-term improvements, while second charge mortgages can suit investors with fewer properties or specific improvement plans,” Norkett said.
Additionally, Norkett said brokers can educate landlords about ‘green mortgages’, which provide incentives such as lower interest rates or cashback for properties with better EPC ratings.
Opportunities for brokers
The proposed EPC changes, Norkett said, bring both challenges and opportunities for landlords in today’s market. Understanding the potential costs and finance options, Norkett said, is crucial – which is where brokers come into play.
“Mortgage brokers, as trusted advisers, can provide valuable support by educating landlords about the EPC requirements, guiding them through financing options, and helping them make informed decisions,” he added.
By actively engaging with landlords and offering tailored advice, Norkett said brokers can play a vital role in ensuring landlords stay ahead of the proposed EPC guidelines and contribute to a more sustainable rental market.
What do you believe are the best approaches to navigating the proposed EPC regulation changes? Let us know in the comment section below.
