EPC Rating for Landlords: how you can use bridging finance to improve the EPC rating for your buy-to-let.

This month we asked one of our lending partners, Shawbrook, about EPC ratings for landlords and how you can improve the EPC rating of your buy-to-let to C or above to protect your investments and portfolio for the future. Here, Lee Williams, National Relationship Manager, explains what an EPC is, the standards that need to be achieved by 2025, how to fund these changes with a bridging loan and the incentives that Shawbrook offers its energy efficient customers.

Did you know the UK has some of the oldest, draughtiest and leakiest housing stock in Europe? 

From cottages and Victorian terraces to ultra-modern high-rise buildings, the private rental sector is hugely diverse and as a result, a single straightforward housing policy on improving energy efficiency can’t be applied to the whole sector.

But improving the energy efficiency of UK homes is an essential part of the Government’s plan to meet its net zero target for carbon emission by 2050. Although it has not yet been put into law, the government proposed a required minimum energy efficiency standard of EPC rating C or above for all newly rented properties in England and Wales by April 2025. 

A failure to act from landlords could risk making thousands of buy-to-let businesses unviable in the long-term and stretch the supply of rental housing to breaking point.

But taking a step back and going back to the beginning, what are EPCs, ratings and why are they important?

What is an EPC rating?

EPC stands for Energy Performance Certificate and is a certificate that shows how energy efficient a property is, which includes estimated energy costs and a summary of its energy performance-related features. 

It rates a property on a scale of A (very efficient) to G (inefficient) and the rating is valid for 10 years from the date of issue. The EPC will break down each building feature/element, including walls, windows, hot water to assess how much energy a property uses, how efficiently the energy is used and how much it loses, for example through poor insulation. A lower rating can mean higher energy costs for the household.

EPC rating for landlords: All buy-to-let properties to meet an EPC standard of C

The government would like all newly rented properties in England and Wales to meet a minimum EPC rating of C by April 2025 – tougher than the current E standard – and this could be extended to all rental properties by 2028. To improve a property’s EPC rating, landlords can install new windows with double-glazing, a new boiler, heat pump or insulation. However, this can be hugely expensive and potentially out of reach for some as in some parts of the country, these costs are likely to be a much greater percentage of a properties’ value.

EPC and the cost of living crisis

Furthermore, the energy efficiency of a property is now more important than ever with the rising cost of living. Research we conducted in a whitepaper released in October 2022 found the median household’s energy bill was around £2,500 a year, with a typical bill for gas and electricity around £210 a month compared to £90 a month in October 2020. This level of financial pressure brings home energy efficiency into sharp focus, and of the tenants we sampled, some were starting to get concerned:

• 21% of tenants have spoken to their landlords about EPC improvements
• 58% say they would be less likely to look at a rental property with a rating of D or below
• 72% of tenants aged 18-34 check a property’s rating before signing a contract

So, with the upcoming government regulations and the pressures of the rising cost of living, landlords may need to act fast to improve the energy efficiency of their properties. But with energy efficiency improvements being expensive, the challenge for many landlords is how do they fund the costs it needs to reach a minimum C rating? 

How can Landlords fund changes to improve their EPC rating to C?

Mortgage lenders can often be the key point of contact for buy-to-let clients to discuss regulatory changes. As well as those who use cash saving and personal borrowing to fund EPC improvements, many landlords also use products offered by lenders to meet the costs. Of those landlords we sampled, who have already made changes to their portfolios, 12% took out a bridging loan.

How a bridging loan can help to fund changes to improve your EPC rating

Bridging loans can be a good solution in this circumstance as they can help fund energy efficiency improvements over a short-term for several reasons:

1. Speed: They are often completed at a faster-speed as they are shorter-term loans, so funds can land in the bank at a quicker rate. This can be beneficial for those needing to act fast to meet the proposed regulation deadline, or combat the cost of living.
2. Bridge-the-Gap: They can help bridge the gap between the beginning of a refurbishment project and finding a longer-term financial solution. 
3. Property Value: They may help increase the value of a property in the long-term. 

Some lenders, including us at Shawbrook, are beginning to support landlords with mortgage products linked to energy performance ratings. 

Shawbrook offers incentives to Landlords for improving their EPC rating

We recently announced an energy efficiency discount for new buy-to-let mortgage customers of up to 60bps on their arrangement fee for properties with an EPC rating of A, B or C. For new mortgages on properties where the EPC rating improves to at least a C during the term with Shawbrook, customers can apply for a partial refund of their arrangement fee, plus the cost of the new certificate (up to £100).  We also have plans to roll out further support for landlords needing to make improvements to their properties in the coming months as part of our commitment to support them on their journey to becoming more energy efficient.   

Each landlord has a unique and sometimes complex situation, so should review all the available options and discuss with their brokers the best funding solution. Explore your options for energy efficient home improvements today to prepare your portfolios and get ahead of the proposed regulations.

[All statistics included come from Confronting the EPC Challenge: The path to a sustainable rental market, a whitepaper by Shawbrook [October 2022].