The
rental property market is on the brink of a significant shift, one that will
undoubtedly cause concern among landlords across the UK. The new Labour
government has made clear its intention to raise the minimum energy performance
standards for rental properties, a move that could have far-reaching
implications for both landlords and tenants alike. The proposed change, which
would see the minimum Energy Performance Certificate (EPC) rating for rental
properties increase from E to C by 2030, has sparked a mix of anxiety and
uncertainty within the property sector.
The
new regulations are part of Labour’s broader commitment to combat climate
change and enhance energy efficiency across the nation’s housing stock. Yet
this step isn’t the first foray by a government into improving the energy
efficiency of the U.K.’s private rental homes.
The Tory government first
introduced EPC regulations for private rental properties in 2018 as part of a
broader effort to improve the energy efficiency of the UK's housing stock.
Under these regulations, landlords were required to ensure that their
properties met a minimum EPC rating of E before they could be legally rented
out. To support this, certain exemptions were allowed, and a cost cap was
introduced, limiting the amount landlords were required to spend on energy
efficiency improvements to £3,500 per property.
This cap was intended to
prevent undue financial strain on landlords, particularly those with older or
lower-value properties, while still encouraging necessary upgrades. The £3,500
cap covered a range of potential improvements, including insulation, heating
system upgrades, and draught-proofing, and was seen as a balanced approach that
allowed landlords to comply with the new standards without facing prohibitive
costs.
The Scale of the Challenge for Northampton
Landlords
While
the intentions of the Labour government are commendable, the practicalities for
landlords are anything but straightforward. Upgrading a property’s energy
efficiency from an E rating to a C rating is not merely a matter of a few minor
tweaks like it was from taking a property from a G to an E rating; it often
requires substantial investment. The reality of bringing a property up to a C
rating could be vastly more expensive, with some projections placing the cost as
high as £30,000 per property for older properties.
These
figures are not just arbitrary; they reflect the significant work required to
meet the new standards. From installing new insulation, upgrading heating
systems, replacing windows, to potentially more extensive renovations depending
on the property’s age and construction, the financial burden is considerable.
For many Northampton landlords, particularly those with older properties or
properties where the value of rental homes are lower, the costs may seem
prohibitive.
The Impact on the Northampton Rental
Market
The
implications of these changes are likely to be profound. Some Northampton landlords
may decide that the cost of upgrading is simply too high and choose to sell
their Northampton properties instead. This exodus from the rental market could
exacerbate the current housing shortage for tenants, driving up rents and
making it even more difficult for those tenants to find affordable rental homes
(although paradoxically, making buy-to-let more profitable for those that
remain).
There
is also the risk that the increased financial burden on landlords will be
passed onto tenants in the form of higher rents. While the goal of improving
energy efficiency is to reduce overall living costs for tenants by lowering
their energy bills, this benefit could be offset if landlords raise rents to
recoup their investment. This could particularly impact properties where rental
incomes are lower, and the cost of upgrades represents a significant proportion
of the property’s value.
Does Age, Tenure and Type of Home Make a Difference
on the EPC Rating?
The EPC scores associated with each energy efficiency band are:
· Band A – 92
plus (most efficient)
· Band B – 81
to 91
· Band C – 69
to 80
· Band D – 55
to 68
· Band E – 39
to 54
· Band F – 21
to 38
· Band G – 1
to 20 (least efficient)
Looking at
only the property type, it certainly affects energy efficiency.
Overall,
“flats and maisonettes” are the most energy-efficient property type in the UK,
with a median energy efficiency score of 73, which is equivalent to band C. Detached
and terraced dwellings came in second at 66 while in last place was semi-detached
(65).
Detached
homes tend to be more modern, so should have a higher energy rating. There are three
external walls exposed in semi-detached houses, which would make you think it would
have better EPC ratings than a detached. However, the average age of UK
semi-detached homes is older than the average age of UK detached homes. Finally,
the terraced home normally only has two external walls, so should be better
than semis and detached homes. Yet, terraced homes have solid walls, which make
them perform not as well as cavity walls. Finally, flats and maisonettes, which
are more likely to be more modern and grouped in blocks, making them more
efficient.
Energy
Efficiency Across the Different Property Types and Their Tenure
Breaking down
each type into its three tenures of owner occupiers, private renting and social
renting…
Detached
properties exhibit relatively similar energy efficiency ratings across all
tenures, with owner-occupied homes scoring an average of 64, slightly higher
than the private rented sector at 62, with social rented properties at 66. This
suggests that while there is a marginal variation, social rented detached homes
tend to be more energy efficient on average.
Semi-detached
homes show uniformity in energy efficiency for owner-occupied and private
rented properties, both with an average rating of 63. Social rented
semi-detached homes, however, are somewhat more efficient, with an average
rating of 68. This may reflect better insulation or energy-saving measures in
the social housing sector.
Terraced
properties reveal a small increase in energy efficiency as we move from
owner-occupied (63) to private rented (64) and then to social rented (69). This
trend indicates that terraced homes in the social rented sector might benefit
from recent energy efficiency upgrades or more rigorous building standards.
Finally, flats
and maisonettes demonstrate the highest energy efficiency ratings across
all property types, with owner-occupied and social rented homes both scoring
72, and private rented properties closely following at 70. The higher ratings
in this category could be due to the structural benefits of multi-unit
buildings, such as shared walls that reduce heat loss.
In summary,
while there are differences in energy efficiency across different property
types and tenures, social rented properties generally exhibit higher energy
efficiency ratings, particularly in the semi-detached and terraced categories.
This may reflect concerted efforts within the social housing sector to improve
energy efficiency, possibly driven by policy initiatives and funding targeted
at reducing fuel poverty.
Energy Efficiency by Property Age
Finally, I just
wanted to look at the age of the property and see if there is any difference.
The age of a home
is also a key determinant of its energy efficiency, largely due to advancements
in construction techniques and regulations over time. Properties built from
2012 onwards tend to have the highest energy efficiency, with a median score of
84, aligning with EPC band B. Homes constructed between 1983 and 2011 also
perform relatively well, with a median score of 72.
Older properties,
particularly those built between 1930 and 1982, have a lower median energy
efficiency score of 65. The least energy-efficient homes are those built before
1930, which have a median score of 59, placing them in band E.
The concentration
of older properties in an area can significantly impact its overall energy
efficiency ratings, with areas of Northampton containing a higher proportion of
pre-1930 homes typically showing lower median scores.
The Regional and Local Northampton Picture
38.36% of UK private rented homes are in the
proposed minimum EPC standards of A to C (compared to 36.28% in the East Midlands).
Nationally, 59.46% of private rented homes are in
the D & E EPC ratings at the moment, (compared to 61.85% in the East
Midlands).
There
are 23,110 private rented properties in Northampton, of which 14,904 properties
are in EPC Bands D and E.
To
visualise that better, I have created this heat map to show the extent of the
issue for Northampton landlords.
Northampton Landlords Navigating
the Uncertainty
In
the face of these challenges, it is crucial for Northampton landlords to adopt
a pragmatic approach. While the initial reaction may be one of concern, it is
important to consider the long-term benefits of making these energy efficiency
improvements. Properties with higher EPC ratings are not only more attractive to
tenants, who are increasingly looking for homes with lower running costs, but
they also tend to have higher market values. By investing in upgrades now,
landlords can not only comply with future regulations but also enhance the
value of their investments.
Moreover,
there may be opportunities to mitigate the costs. The government has yet to
finalise the details of the new regulations, and there is hope that they will
introduce measures to support landlords through this transition. For example,
there has been discussion around increasing the cap on allowable expenditure
for energy efficiency improvements, potentially up to £10,000. Additionally,
there may be grants, loans, or tax incentives available to help offset some of
the costs.
Northampton
landlords should also consider the timing of their investments. While the 2030
deadline may seem distant, the scale of the work required means that starting
early could be beneficial. Properties that are upgraded sooner rather than
later will be in a better position to attract and retain tenants, particularly
as energy efficiency becomes an increasingly important consideration for
renters. Furthermore, by acting now, landlords can avoid the rush and potential
price increases that are likely to occur as the deadline approaches.
It
is also worth considering the broader societal benefits of these changes.
Improving the energy efficiency of rental properties is not just about meeting
government regulations; it is about contributing to the fight against climate
change and helping to reduce the country’s overall carbon footprint. This is
something that both Northampton landlords and tenants can take pride in, and it
aligns with the growing demand for more sustainable living options.
Moreover,
the improvements made to properties will not only benefit current Northampton tenants
but also increase the long-term viability of the rental market. As properties
become more energy-efficient, they will be better equipped to withstand future
changes in energy prices and regulations. This future-proofs investments and
ensures that landlords can continue to offer quality housing in a competitive
market.
Final Thoughts: A Strategic
Approach for Northampton Landlords
In
conclusion, while the proposed changes to EPC requirements may initially seem
daunting, they should be viewed as an opportunity rather than a threat. By
taking a proactive and strategic approach, Northampton landlords can not only
meet the new standards but also enhance the value and appeal of their
properties. This will not only benefit their own portfolios but also contribute
to a more sustainable and resilient local rental market.
The
key is to start planning now, seek out advice from agents like ourselves or
many of the other agents in Northampton, and consider the long-term benefits of
these changes. The road ahead may be challenging, but with careful planning and
a commitment to improving the quality of rental housing, Northampton landlords
can navigate this transition successfully.
As
leaders in the property market, feel free to contact us to discuss what has
been said in the article as it is everyone’s responsibility to not only meet
these new standards but to embrace the positive changes they bring.
