A recent Q3 research report from Foundation Home Loans reveals that 67% of landlords currently own at least one property that does not meet the government’s proposed energy performance certificate (EPC) ‘C’ target, which is set to apply to both private and social rented homes by 2030. This comes in response to the government’s plan to consult on these new EPC regulations, which aim to significantly improve the energy efficiency of rental properties.

Landlord Awareness and Understanding of EPC Standards

The research shows that awareness of the new EPC standards is high, with 92% of landlords having at least some knowledge of the regulations. However, only 67% have a thorough understanding of the specific details. The understanding is slightly lower among portfolio landlords (those with four or more buy-to-let properties), with 62% fully aware of the requirements, compared to 69% of unencumbered or consumer borrowers.

Plans for Compliance

Among those landlords whose properties don’t meet the EPC ‘C’ target:

• 42% intend to make the necessary improvements to bring their properties up to the required standard.
• 24% plan to make the minimum improvements necessary to comply, with the intention of continuing to let the property.
• 14% aim to carry out works that will maximise the long-term value of the property while keeping it in their rental portfolio.
• 3% plan to carry out upgrades and then sell the property.

Meanwhile, 34% of landlords either plan to sell the property without carrying out any work or choose not to re-let it, potentially indicating a willingness to exit the rental market rather than invest in energy efficiency upgrades. Another 17% chose the “other” category, and 3% have stated they will continue letting their property without making any improvements.

Funding for Improvements

For those landlords intending to upgrade their properties:

• 41% plan to fund improvements through rent increases.
• 28% will seek government grants/funding.
• 17% intend to use savings.
• 12% will release equity from their portfolio.
• 5% are considering seeking a further advance from a mortgage lender or a loan.

Types of Upgrades Planned

The improvements that landlords are planning to make include:

• 37% of landlords intend to install solid wall or floor insulation.
• 26% will add loft insulation.
• 25% plan to upgrade the boiler or heating systems.
• 22% are considering installing solar PV panels.

Challenges and Uncertainties

Despite the growing awareness, 13% of landlords are still uncertain about the specific improvements they need to make, and 37% are unsure of the total cost involved per property. This highlights the potential challenges landlords face in navigating the new regulations and the associated costs.

Implications for Landlords and the Buy-to-Let Sector

Grant Hendry, director of sales at Foundation Home Loans, emphasizes the importance of future-proofing rental properties in line with EPC requirements. He notes that landlords will need to weigh the financial impact of the upgrades and make strategic decisions about their portfolios.

The report also underscores the opportunity for lenders and intermediaries to support landlords in achieving these standards. By offering tailored green mortgage products, lenders can help landlords meet both regulatory demands and their unique financial needs, aligning their investment strategies with sustainable practices in the buy-to-let sector.

Conclusion

As the deadline for meeting the EPC ‘C’ target draws closer, landlords are facing both financial and planning considerations. While awareness is high, many still face uncertainty about the specific actions required and the costs involved. With various funding options available, landlords will need to decide whether to invest in upgrades, increase rents, or exit the market. The potential for green mortgages could play a key role in helping landlords navigate these changes.