Over two-thirds of landlords (68%) say they would now be less likely to purchase a property if it has an Energy Performance Certificate (EPC) rating of below C – the level at which anticipated legislation is likely to be introduced for all new and existing private rental sector tenancies from 2025 onwards.
"There are clearly very strong levels of awareness here and landlords appear to be actively considering their plans in light of what is likely to hit the statute books."
Of those specifically looking to buy in the next 12 months, almost two-thirds (59%) said they would be looking to buy a property rated C or above, while 29% said they would be buying those rated D through to E. Landlords were also more likely to sell a property rated D-E over the next 12 months, rather than one rated A-C.
The results come from the latest Q4 2022 BVA BDRC Landlord Panel research report, comprised of 752 online interviews with landlords and undertaken on behalf of Foundation Home Loans in November and December last year.
It specifically asked landlords how many properties within their portfolios were rated below C, with the results showing almost four in 10 rental properties did not currently reach this level. This means that the average landlord currently has 2.9 properties rated D and below, with the figure rising to 9.8 for landlords with larger portfolios – over 11 properties.
While there was strong awareness of the anticipated future requirements – 66% said they were aware and understood – 25% said they did not understand the details, while 9% were not aware at all.
Two-thirds of landlords said they would carry out any works required to increase the EPC level of a property and carry on letting it out, however 20% said they would not carry out any works and seek to sell or not re-let.
When asked what methods of funding they would use to carry out any work, 62% said they would use savings, 30% said they would put up the rent to cover the cost, 19% would seek a Government grant or funding, 10% would take out a loan, 8% would release equity, 6% would seek a further advance, while 11% said they could not currently afford to carry the work out.
Landlords were also asked what they believed the anticipated costs per property would be for the work to be carried out, suggesting an average of £8.3k. Those with larger portfolios believe the cost would be closer to £9k per property.
George Gee, commercial managing director at Foundation Home Loans, said: “It’s obvious from this research that 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 and are planning for a future in which many of them will have to spend money in order to improve those ratings.
“Previously, the EPC rating of a property made very little difference to its saleability or indeed the way landlords viewed it for purchase, but a combination of factors including the Government’s intended measures in this area plus of course a wider focus on energy efficiency, all things Green, and the cost of utility bills, has drawn this into a much sharper spotlight.
“There are clearly very strong levels of awareness here and landlords appear to be actively considering their plans in light of what is likely to hit the statute books. The majority of landlords appear to be relying on savings in order to upgrade any properties below level C, however when they get to this point, that might not be achievable or indeed appealing, and mortgage advisers are likely to have to play a considerable role in helping their clients fund such work.
“The good news is there are a growing number of lending options, from Foundation and others, which will be able to support landlords in upgrading properties. This is positive because with four out of 10 properties currently not meeting this benchmark, there will need to be some considerable activity here if they are going to continue letting these out.
“Interestingly, the EPC level is now a real factor when landlords are looking at purchase opportunities, with over two-thirds saying they wouldn’t purchase a property unless it had achieved the necessary level. That is a real shift, and one that is likely to filter into values if these higher-rated properties become, as is likely, more desirable.
“Advisers are going to be encountering far more landlords where the EPC is a real determining factor in their purchase/remortgage decisions, and therefore it is imperative they have a good working knowledge of the measures and what products are available in order to support their clients in getting to their end goals.”