Landlords face expensive EPC ratings struggle

News at John Francis | 11/08/2021


An article from Property Investor Post Landlords face a costly struggle to improve the EPC ratings of their properties amid the government’s push to phase out gas boilers, experts have warned. Subject to a government consultation, landlords will only be able to issue new tenancies on properties with an Energy Performance Certificates (EPC) rating of at least C from 2025, with the date being brought forward from 2028. One relatively inexpensive way of improving your property’s EPC rating is to install an energy efficient gas boiler, at between £600 and £2,500. However from 2025 the government has confirmed that all new homes will be banned from installing gas and oil boilers, while there are fears punitive rules on gas boilers could be extended to existing homes. Alan Ward, non executive director of the National Residential Landlords Association, said: “Gas is currently the most economical and efficient way of heating a property. “However the government wants to drive us off gas because it’s a carbon-based fuel. “It looks like you’re going to have to take the gas boiler out and put a heat source air pump in, but to do that you have to change whole central heating system “Heat pump costs £8-10,000 at the moment. Maybe volume will be a big difference but I can’t see manufacturers giving up on that revenue. “A lot of landlords with a handful of properties don’t have the capital reserves to make these changes. Are they going to take out an additional mortgage to fund them? “How’s that going to balance income with expenditure – are rents going to have to go up?” Expensive It seems Ward may even be underestimating the cost of some heat pumps. While air source heat pumps are available for between £6,000-£8,000, the Energy Saving Trust estimated that ground source heat pumps cost between £10,000 to £18,000 to install. According to Ward you may also have to replace the piping around a home, as water temperatures can reach 60 degrees when using heat pumps. Making these changes is unlikely to be possible with tenants in the home, which means landlords would have to contend with a void period. Ward added that tenants themselves tend to favour properties with gas heaters over heat pumps, which makes this transition all the more frustrating. Two timebombs Kate Faulkner, owner of Designs on Property, agrees with Ward that the issue of EPC ratings is only going to become more troublesome for landlords. She said: “There are two timebombs. The first is whether the government is going to enforce the C rating by 2025. “What could happen is you could have properties falling out of the private rental sector because landlords can’t get the rating down. “The challenge is having the people on the ground to recommend what’s required and to do the work – That’s not easy as there’s a lot of rogues in this market. “The second factor is how landlords are going to be profitable if they have to install expensive heat pumps. “The private rental sector could lose a lot of stock – there already aren’t anywhere near enough rental properties so that’s a big issue for tenants.” Needing to upgrade older properties is something that could hit landlords harder than other sectors. This is because landlords tend to buy older properties rather than pay the ‘new build premium’. As a landlord Alan Ward has been struggling to get his own properties to a C rating, especially rural homes which aren’t as airtight, and therefore as energy efficient as a modern home. In one instance he replaced a home’s electric under floor heating with a gas boiler, as well as adding internal wall insulation, which brought the home to a C rating. But he added: “I’ve got some shared properties that are D, which are gas heated and frankly I don’t know what I’m going to do with them. “I can’t put more loft insulation in them and there’s no cavity because they’re 100 years old.” More information As it stands owners with properties which are below an E rating can apply for an EPC exception, where all relevant improvements have been made. This is valid for five years and enables them to let out homes. It remains to be seen whether a large cohort of landlords are going to have to apply for exemptions once the minimum rating is raised to C. One positive, as Kate Faulkner discussed, is that mortgage lenders are looking to work with landlords to incentivise upgrading rental stock. Indeed, we’ve seen a raft of lenders introduce products incentivising energy efficient properties this year, and that’s something that’s likely to continue. Despite the cost of upgrading a home’s EPC rating, she urged landlords to do all they can to improve standards. She added: “Getting a property to an EPC rating of C is a really good idea. “Utility bills are going to go up – the less tenants have to pay for utilities the more money they can pay on rent. That’s what landlords need to be thinking of. “Communication has been poor from a government perspective but people really need to understand the benefits of raising EPC ratings.” Case study One landlord couple that has already gone through the lengthy process of upgrading their property’s green credentials is James and Tatiana Tanner. They bought a 100-year-old Edwardian Home in Muswell Hill, London, and managed to improve its EPC rating from a G to a B. The feat was achieved by replacing the windows with double glazing, while they draft proofed the windows and the front door, and added PV solar panels. They also installed underfloor insulation, internal wall insulation and basement insulation, and blocked off all but one of the property’s chimneys with a chimney balloon. The pair did use a gas boiler, as they predict that the government will enable properties with gas boilers already installed to keep on using them. James Tanner said: “It’s really important for everyone to live a sustainable life and have a more sustainable home. “The key thing is you have to have an appetite to want to do it, as landlords have to go about funding it. “Also, crucially they need to find somebody to guide them through it, to project manage it.” The couple hired a graduate from the Centre for Alternative Technology to project manage the works, while Tatiana Tanner was in charge of the design. James Tanner recommended for landlords to be tactical about when they improve older properties. He added: “Landlords need to plan this very carefully when a tenancy ends, because that’s the time to do it, when the property is going to be empty anyway.” For landlords who want to improve the EPC ratings of their property, the couple recommended contacting the Centre for Alternative Technology CAT and/or the Energy Saving Trust, both of which offer assistance on improving EPC ratings for free.