As a landlord in the UK, you might be wondering whether it’s a good time to invest in property given the potential costs associated with the Energy Performance Certificate (EPC) regulations.
These changes, proposed by the government, would modify the Minimum Energy Efficient Standards and are set to take effect between 2025 and 2028.
First, let’s define what an EPC rating is. Essentially, it’s a measure of how energy-efficient a property is, with ratings ranging from A (most efficient) to G (least efficient). A higher EPC rating can lead to lower energy bills, a smaller carbon footprint, and make the property more appealing to potential tenants and buyers.
So, what are the new changes? Currently, landlords must have an EPC rating of at least E to rent out a property. However, starting in 2025, newly rented properties will need a rating of at least C, and existing tenancies will have until 2028 to comply. These changes are meant to help the government achieve its net-zero carbon targets. Non-compliance could result in a hefty penalty of up to £30,000 per property, which is a significant increase from the current penalty of £5,000.
Well, they’ll need to take steps to increase their property’s EPC rating to comply with the new regulations. These changes could potentially cost landlords thousands of pounds. However, the government has provided a list of low-cost measures, such as adding insulation to wall cavities, floors, and lofts, and installing smart meters and LED lights throughout the property. For a C rating, landlords may need to invest in more expensive products such as triple-glazed windows, solar panels, and energy-efficient boilers.
The big question on most landlords’ minds is whether they’ll receive any financial support to help deal with the new changes. Currently, there’s no plan for financial assistance, but landlord associations and regulatory bodies are calling for support to ease the burden on landlords. It remains to be seen whether the government will provide any financial assistance, but it remains a topic of discussion.
If the EPC regulations didn’t cause enough of a headache or cost burden, it’s vital to factor in the other challenges that affect the day to day running of a property portfolio, such as the current high mortgage interest rates squeezing cash flow, recent changes to the tax treatment of mortgage interest and the Renters Reform Bill, which will make it much harder to evict a tenant going forward.
With the cost-of-living crisis still in full swing, the number of tenants in rent arrears is expected to increase in the coming year.
Finally, if you’re planning on selling at some stage, please remember that if you’re holding the property personally (as opposed to in a limited company), any gains will be subject to capital gains tax. As of April 2023, the capital gains tax allowance has reduced to £6,000 and will halve to £3,000 from April 2024.
If the government approves the proposed changes, it could mean that both landlords and tenants may be far worse off. If you’re a landlord, you may want to consider remortgaging to cover the costs of making improvements to your property to make it more energy-efficient.
Bearing in mind all the other challenges facing landlords, you may be considering cashing out and investing your money into different options.
Whatever your decision may be, it is recommended to consult an experienced financial adviser who can help you navigate the changes and discuss the best options for your individual circumstances.
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