The latest research from Foundation Home Loans and BVA BDRC has revealed a significant shift in the preferences of landlords in the UK property market. A staggering 71% of landlords have expressed reluctance to purchase properties with an Energy Performance Certificate (EPC) rating below C, according to the BVA BDRC landlord research for the second quarter of 2023.
This shift in landlord preferences is largely driven by the increasing importance of EPC ratings in their decision-making process. A vast majority of landlords now consider a property’s EPC rating when making purchasing decisions, with properties rated below C becoming less attractive. This trend is anticipated to set a new standard for the rental property market, with EPC Level C expected to become the minimum requirement in the future.
Interestingly, the research also discovered that the larger a landlord’s property portfolio, the more inclined they were to avoid purchasing properties rated below C. Specifically, 74% of landlords with six to ten properties and 78% of those with over twenty properties expressed their aversion to sub-C EPC properties. Only 18% of landlords indicated that the EPC level would have no impact on their purchase decisions.
The comprehensive research, which included 983 online interviews with landlords, was conducted on behalf of Foundation Home Loans, an intermediary-only specialist lender, during the first three weeks of July 2023.
Furthermore, landlords exhibited a strong awareness of potential future legislation related to a minimum EPC level of C for all private rental sector (PRS) properties. An impressive 71% of landlords stated that they were fully aware and understood the details of such legislation, while only 4% claimed to have no awareness of it.
Given the findings that the average landlord owns 3.3 properties with EPC ratings below D, rising to 9.5 for landlords with more than 11 properties, it is not surprising that landlords are increasingly conscious of the impending minimum EPC standards for PRS properties. This awareness is leading landlords to reconsider adding properties with EPC ratings below C to their portfolios.
Regarding the improvements landlords planned to undertake on sub-C EPC properties, 37% stated that they would carry out the works at the minimum cost required for compliance, while 20% indicated that they would invest in improvements to maximize the long-term value of their properties. However, a significant quarter of landlords expressed their intention not to carry out any works, instead opting to either sell the property or not re-let it.
The research estimated that landlords anticipate spending just over £10,000 per property to achieve the required improvements for EPC Level C. For landlords with larger portfolios, this cost increases to over £11,500 per property.
To fund these improvements, 57% of landlords said they would use their savings, a notable decrease from the 76% reported in the previous quarter. Meanwhile, 33% planned to increase rent prices, up from 26%, and 18% would seek government grants or funding, a slight decrease from the previous figure of 19%. Additionally, 19% of landlords indicated that they would either take a further advance from their lender or acquire a loan, which was down from the previous figure of 20%.
Grant Hendry, Director of Sales at Foundation Home Loans, commented on the research findings, stating, “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 further noted, “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.”
As of now, it appears that the implementation of the minimum EPC Level legislation is set for either 2025 or 2028. The research underscores the need for landlords to plan and adapt to meet these forthcoming standards, ensuring their properties meet the expected criteria to remain competitive in the rental market.
In summary, the research reveals that landlords are increasingly prioritizing properties with EPC Level C ratings, foreseeing future legislative requirements and striving to future-proof their portfolios to meet the expected standards. This shift in preferences presents both challenges and opportunities for landlords and advisors in the rental property market.