Threat Of Tougher EPCs Now Driving Investor Behaviour

Proposed tougher energy efficiency requirements for rental properties are already influencing investor buying decisions, with a quarter acquiring higher-rated properties, research from Paragon Bank has found.

Paragon’s research of over 1,200 landlords found that 15 per cent have purchased property with an Energy Performance Certificate rating of between A and C in anticipation of the tougher requirements, with a further 10 per cent acquiring D-rated property with a view to upgrading.

Under Government proposals, new rental tenancies will require a minimum EPC of C by April 2025, with all tenancies meeting that standard by 2028. However, it is over two years since the proposals were made and Michael Gove, Secretary of State for Levelling Up, Housing and Communities has recently hinted that the implementation will be delayed.

The specialist lender’s research has highlighted the proposals are influencing landlords’ business strategies more broadly, with just under six in 10 (59 per cent) having taken some form of action as a result.

In addition to acquiring A-C property, one in five landlords have already made improvements to bring a property’s EPC rating up to C or above. A similar proportion indicated that they are currently in the process of retrofitting their properties with energy-saving measures in order to increase the EPC rating to C or above.

The proposals have resulted in a level of divestment, albeit to a lower degree, with less than one in 10 landlords advising that they have sold property that would be too expensive to upgrade to meet the proposed new standards and seven per cent selling homes unable to reach EPC C or above.

Landlords were also asked how EPC ratings would influence future property purchase decisions. Six in 10 said that they would target properties that fall into EPC bands A–C, 18 per cent would purchase properties rated EPC D or E, with the intention of upgrading them and two per cent would do this with the least energy efficient properties EPC rated F and G. The remaining 19% said that EPC ratings would not impact their future decision making.

Louisa Sedgwick, Commercial Director at Paragon Bank says: “Michael Gove’s recent comments mean it’s looking increasingly likely that any new PRS energy efficiency standards will be delayed. Nevertheless, it’s encouraging to see landlords are already building on the progress made over the last decade in making privately rented homes more sustainable.

“Most commonly, this has been through buying homes that already meet the new standards proposed by the Government, incentivised by green mortgage products. But, with a significant proportion of landlords already making upgrades to improve the energy efficiency of the properties they already own, or planning to do so in future, we see a need for financial support as well as education on what can be a complex and costly undertaking, something that presents huge opportunities for the sector.”