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EPC ratings in the UK’s private rented sector: what landlords need to know

Before you step into the world of buy-to-let, it’s vital to know not only how to turn a profit, but how to ensure you are compliant with all the latest legislation.

One crucial change that came into effect on all privately rented properties in the UK in April 2020 was a new minimum energy efficiency standard (MEES), which means your property must achieve a minimum EPC rating of E in order to operate.

The change has left some in the sector behind, and has certainly highlighted a number of properties that are not fit for purpose.

What is an EPC rating?

Almost every residential property in the UK, whether rented or privately owned, will have an energy performance certificate (EPC). To obtain one, you must appoint an accredited energy assessor, who will inspect the property and then give it a rating between A and G. They will also provide a potential rating, which could be achieved if improvements were carried out. EPCs must be renewed every 10 years.

In the private rented sector, though, as mentioned above, the minimum rating allowed is now E. The government intends to increase the requirement to C in 2025, although this could come earlier as “going green” and environmental awareness move higher up the country’s political agenda.

What can landlords do?

If your property falls below the required standard, and it is either currently let or will be in the near future, you must carry out upgrades to achieve a rating of E or higher. The maximum a landlord can be expected to spend on improvements is £3,500 including VAT. If the spending cap is reached but the property still fails to score an E, the landlord must register an exemption.

The government provides a list of recommended measures to improve an EPC rating

EPC ratings in the rental sector_ what landlords need to know
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Can landlords keep up with the changes?

Property investors and landlords who invest in newer properties are likely to escape any big spending to improve their EPC ratings. However, a huge number of the country’s rental homes are older, less efficient properties, and the challenge to get them up to scratch could be extremely difficult to achieve.

At present, it is thought that around two thirds of the country’s rental properties have an EPC rating of D or below. While many of these may meet the requirements at present, they could fall short when the new targets are brought in.

Research from Rightmove also shows that around 1.7 million of the country’s homes rated D to G could not be improved to hit a rating of C. What’s more, Savills research finds that the cost of upgrading a D-rated property up to a C band could average around £12,746.

Will investors leave the private rented sector?

Inevitably, some landlords and investors could be put off by the costs involved in achieving the MEES targets. Many may decide to sell any properties that have low EPC ratings. However, it could also be an impetus for many to get on board with the drive towards lowering the country’s greenhouse gas emissions.

What’s more, as energy bills continue to rise, properties with low EPC ratings are likely to become increasingly unpopular among tenants. Add to this the fact that more people than ever are keen to do their bit for the environment, and sub-standard properties could be cast aside in favour of more eco-friendly, cheaper-to-run ones.

While there may still be a few more years for landlords to make further changes to improve their EPC ratings, those who are the most keen to future-proof their investment portfolios will be keeping a close eye on the energy efficiency of all their properties now.

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