The government has announced its ‘minimum level of energy efficiency’ standard and this Energy Performance Certificate (EPC) rating for landlords could affect your mortgage application. We explain how…
The Domestic Minimum Energy Efficiency Standard (MEES) Regulations have set a minimum energy efficiency level for domestic private rented properties. The regulations apply to all domestic private rented properties that are let on an assured/regulated or domestic agricultural tenancy agreement and that are legally required to have an Energy Performance Certificate (EPC).
Changes to EPC ratings
In April 2020, landlords can no longer let properties covered by the MEES Regulations if they have an EPC rating below E, unless they have a valid exemption. If your property is a rating of F or G then you will need to improve your properties rating to E immediately.
The government have implemented a ‘cost cap’ for funding improvements to your property and this is capped at £3,500 (including VAT). If EPC ratings for landlords cannot be improved in your property to EPC E for £3,500 or less, you should make all the necessary improvements which can be made up to that amount. You will then need to register for an ‘all improvements made’ exemption.
How to improve your EPC rating
When you receive your EPC report, it will include a list of recommendations explaining how you can improve the energy efficiency of your property. There will be a short list of top actions you can take and also a more detailed list further down setting out all recommended measures with their indicative costs and your typical savings per year. Recommendations, for example, could include solid floor insulation, draught proofing, increase hot water cylinder insulation, replace windows with double or triple glazing.
Some easy ways to improve your EPC rating are:
- Improve your lighting to LED light bulbs,
- Insulate the walls and roof,
- Improve your windows with double or triple glazing,
- Install an energy-efficient boiler,
- Use a smart meter.
Landlords are free to install any energy efficiency measures however, if the improvements do not appear in the list and they fail to improve your property to EPC E, you will not be able to let the property or register for an exemption.
Penalties
If a local authority confirms that a property is let in breach of the regulations, they may serve a financial penalty. The maximum amount you can be fined per property is £5,000 in total.
What does the future hold?
The government has committed to look at setting long-term energy performance standards to improve the energy performance standards of privately rented homes in England and Wales. The aim is for as many properties to be upgraded to EPC B and C by 2030 where practical, cost-effective and affordable. The new EPC regulations would mean that from 2025, your rented property would need to have a certification rating of C or above. However, these changes will be phased in, starting with new tenancies from 2025 and then all tenancies from 2028 and apply to all domestic and private rental properties on a lease between 6 months to 99 years.
Why is this relevant for landlords?
We have recently worked with a portfolio landlord client who was looking to buy a new property to rent out. The EPC rating that they received for the property was EPC F so the lender was not happy with this and could not lend against the property due to it not reaching the current legislation of minimum of EPC E. The agent therefore had to inform the seller that improvements had to be made and a new EPC rating carried out after updates had been made.
If you have any questions regarding EPC ratings, then please get in touch.
*Please note: The FCA does not regulate buy to let mortgages.