Over two-thirds of landlords unlikely to purchase a non-EPC compliant property

Landlords (68%) have reported that they are becoming more aware of the Energy Performance Certificate (EPC) rating of their properties and making informed decisions based on those levels. This trend has led to a decrease in the likelihood of them purchasing a property with an EPC rating below C. It is anticipated that a minimum EPC rating of C will be mandatory for all new and existing private rental sector tenancies from 2025.

"Existing landlords are not just far more aware of the EPC rating of their properties now, but they are actively making decisions based on those levels"

The findings reported are from the recent Q4 2022 BVA BDRC Landlord Panel research study, which consisted of 752 online surveys with landlords. This research was conducted on behalf of Foundation Home Loans during November and December 2022.

The survey specifically aimed to determine the number of properties in landlords' portfolios with a rating lower than C. The results showed that nearly 40% of rental properties did not meet this level. On average, landlords currently have 2.9 properties with a rating of D or below, with the figure rising to 9.8 for those with larger portfolios of over 11 properties.

Although there was a high level of awareness about the future requirements, with 66% of landlords stating they were aware and understood, 25% reported not having a clear understanding of the details, and 9% were completely unaware.

Of the landlords surveyed, two-thirds said they would perform any necessary renovations to raise a property's Energy Performance Certificate (EPC) level and continue renting it out. Meanwhile, 20% stated that they would not make any improvements and would either sell the property or not re-rent it.

When questioned on the means they would use to fund any renovations, 62% responded that they would use their savings, 30% stated that they would increase rent to cover the cost, 19% would apply for a government grant or funding, 10% would take out a loan, 8% would release equity, 6% would secure a further advance, while 11% indicated that they were unable to afford the work at the moment.

The landlords were asked to estimate the expected cost per property for the renovations, with an average response of £8.3k. Those with larger portfolios estimated a cost closer to £9k per property.

"Advisers are going to be encountering far more landlords where the EPC is a real determining factor in their purchase/remortgage decisions"

The results demonstrate high levels of awareness among landlords, who are actively considering their plans ahead of the upcoming legislation. The majority of landlords intend to use savings to make necessary upgrades, but this may not be feasible or desirable for all. In these cases, mortgage advisors could play a crucial role in helping landlords fund the necessary renovations.

Another important point to note is that if a property has a very poor EPC it could be unfit to be rented on purchase and this could mean that the stamp duty surcharge of 3% is not applicable. Knowing this before purchase could save a significant amount of funds which could then be put towards the energy improvement. If landlords have already paid this then they have 4 years form purchase to claim back any stamp duty rebate.