A recent survey conducted by BVA BDRC for Q2 2023 has unveiled a significant shift in the preferences of landlords in the UK property market. More than seven out of ten landlords (71%) indicated that they are now hesitant to invest in properties with an Energy Performance Certificate (EPC) rating lower than C.
The research, which included 983 online interviews with landlords, was commissioned by Foundation Home Loans, an intermediary-only specialist lender, during the first three weeks of July this year. It delved into the attitudes of landlords towards EPC ratings and their awareness of potential legislation surrounding a minimum EPC level of C for all private rental sector (PRS) properties.
Among the key findings, the survey revealed that the vast majority of landlords were increasingly disinclined to purchase rental properties with EPC ratings below C. This aligns with the expected future minimum standard, making it a significant consideration for landlords in their purchasing decisions.
Furthermore, the research indicated a strong awareness among landlords regarding the likelihood of future legislation regarding a minimum EPC level of C. A substantial 71% of respondents claimed to be aware and fully understood the details, while 24% were aware but lacked a comprehensive understanding. Only 4% had no awareness of the potential legislation.
The research also spotlighted the average landlord’s property portfolio, revealing that landlords typically owned 3.3 properties with EPC ratings of D or below. This number increased to 9.5 properties for landlords with more than 11 properties. Consequently, Foundation Home Loans noted that the heightened awareness of future minimum EPC standards was unsurprising. Landlords appeared less inclined to add properties with EPC ratings below C to their portfolios.
In terms of addressing the EPC ratings of subpar properties, 37% of landlords indicated that they would carry out the necessary works at the minimum cost required to comply with the standards. Meanwhile, nearly one in five (20%) stated that they would invest in improvements to maximize the long-term value of their property. However, a quarter of landlords expressed no intention to undertake any improvements and would either sell the property or refrain from re-letting it.
The survey also revealed anticipated costs for landlords aiming to elevate their properties to EPC Level C. On average, landlords expected to spend just over £10,000 per property for these upgrades, with the costs rising to over £11,500 for those with larger property portfolios.
Regarding funding for these improvements, the survey showed that 57% of landlords planned to use their savings, down from 76% in the previous quarter. In contrast, 33% intended to increase rent, up from 26%, while 18% considered accessing Government grants or funding, a slight decline from the previous figure of 19%. Additionally, 19% of landlords mentioned they would either take a further advance from their lender or opt for a loan, a minor decrease from the previous 20%.
Foundation Home Loans, which offers a range of specialist buy-to-let mortgages to individual and portfolio landlords as well as limited companies, emphasized its commitment to addressing the evolving landscape. The lender allows capital raising for various purposes and specializes in portfolio underwriting. Notably, Foundation Home Loans offers a specific range of Green products tailored for properties with EPC ratings of A to C.
Grant Hendry, Director of Sales at Foundation Home Loans, commented on the findings, stating, “While we still might be waiting for certainty and clarity over when the Government is likely to introduce its minimum EPC Level legislation for the private rental sector, it’s clear from this research that landlords are aware of what is likely to be coming, and are thinking seriously about their existing portfolios, how they might fund improvements, and what their plans might be when this is introduced.”
Hendry added, “Overall, it seems clear this will remain a major focus within the PRS for years to come, and from an advisory point of view, it is clearly worthwhile having these conversations with landlords immediately, particularly for those at the point of refinance, as they might want to take advantage of this opportunity in order to secure the funding they require for the works.”
The anticipated introduction of minimum EPC Level legislation, expected to be either in 2025 or 2028, has prompted landlords to consider their investments carefully, aiming to future-proof their portfolios by opting for properties with EPC ratings of C and above.
In conclusion, the survey highlights a shifting landscape in the UK property market, where landlords are increasingly prioritizing energy efficiency as a critical factor in their investment decisions. With potential legislation on the horizon, the industry appears poised for substantial changes in the years to come.