EPC Regulations: is this an opportunity for property investors?

New EPC (Energy Performance Certificate) regulations coming into effect in 2025 could well be an opportunity for those property investors who have a long-term strategy in place for their business. 

An EPC provides information about the energy efficiency of a property, rating it on a scale from A to G, with A being the most efficient and G being the least efficient. It also includes recommendations on how to improve the energy efficiency of the property. Current requirements will mean that from 2025, all landlords will be required to have measures in place so that their properties score ‘C’ on the scale. Currently, rental properties require an “E” rating. There are exceptions for properties with existing tenants. An EPC company, often a company specialising in inventories, can assist you in providing a rating for current portfolio properties, or those that you are interested in for future investment. 

There has been a significant backlash from buy-to-let landlords and their representative bodies who have argued that 2025 doesn’t give enough time, or the ability to finance, such investment into property. In response, the Government may introduce measures to help landlords make the required changes:

1. A cap on the investment per property of £10,000
2. The deadline moved to 2028 for new lets, in line with existing lets. This is in part because 3500 properties would have to be updated every day to meet the deadline.

If introduced, these changes will give landlords a fighting chance to make the necessary investment, with a cap that helps those landlords in more challenging properties. Furthermore, for those landlords looking to take on additional properties that come onto the market thanks to these regulations, they will know what the ceiling of investment is which will aid their finance and business planning.

The fact is though, that the changes to these regulations are coming, so landlords should begin to “get their house in order” now, and not wait until the last minute when they could face fines up to £30,000 for non-compliance.

Read our article about the responsibilities of landlords here 

For property investors, having a high energy performance rating can be advantageous in several ways:

1. Attracting tenants: A property with a good energy performance rating is likely to be more attractive to tenants. Increasingly, tenants are looking for properties that are energy-efficient, as it can result in lower utility bills and a more comfortable living environment.
2. Rental demand and occupancy: Energy-efficient properties tend to have higher rental demand and lower vacancy rates. This can lead to a more stable rental income for property investors.
3. Compliance with regulations: In many countries, there are regulations in place that require properties to meet certain energy efficiency standards. By ensuring that your property has a good energy performance rating, you can avoid any penalties or fines associated with non-compliance.
4. Cost savings: Energy-efficient properties generally have lower energy consumption, which can result in reduced utility costs. This can be particularly beneficial for landlords who are responsible for paying the utility bills for their properties.
5. Property value: Energy efficiency is increasingly considered a desirable feature in the real estate market. A property with a high energy performance rating may have a higher market value and could potentially fetch a higher selling price if the investor decides to sell the property in the future.

It’s worth noting that the specific impact of an EPC on property investors can vary depending on local regulations and market conditions. Therefore, it’s important for investors to research and understand the relevant rules and trends in their specific location to fully assess the opportunities and potential benefits of an EPC for their investment strategy.

Will landlords sell their properties due to new regulations

The impact of new EPC regulations on landlords’ decisions to sell their properties can vary depending on a variety of factors, including the specific regulations in place, the financial implications for landlords, and the individual circumstances of each landlord.

If new EPC regulations require landlords to make substantial energy efficiency improvements to their properties, it could result in increased costs for the landlords. Some landlords may find these costs burdensome, especially if they have multiple properties in their portfolio or if they are operating on thin profit margins. In such cases, some landlords may choose to sell their properties rather than invest in the required upgrades.

Additionally, the potential impact on rental income should also be considered. If landlords are required to make significant improvements to their properties, they may need to pass some of the costs onto tenants through higher rents. This could potentially affect the affordability and demand for rental properties, which might prompt some landlords to consider selling instead.

On the other hand, there may be landlords who see an opportunity in the new EPC regulations. By proactively making energy efficiency improvements to their properties, they can potentially attract environmentally conscious tenants, command higher rental prices, and increase the overall value of their properties. In such cases, landlords may choose to retain and improve their properties rather than selling.

It’s important to note that the impact of the regulations on landlords’ decisions to sell their properties is complex and depends on various factors. Landlords will need to carefully evaluate the costs, benefits, and potential returns on investment associated with complying with the new regulations before making a decision. Additionally, the specific local housing market conditions and trends will also play a role in their decision-making process.

What is the EPC requirement from 2025 and is this an opportunity or a threat for landlords?

The perception of new EPC (Energy Performance Certificate) regulations as an opportunity or a threat can vary depending on individual perspectives and circumstances. Here are some factors to consider:

Opportunity:

1. Increased demand: EPC regulations often push for higher energy efficiency standards. Properties that meet these standards may attract a larger pool of environmentally conscious tenants or buyers who value energy efficiency. This increased demand can lead to higher occupancy rates and potentially higher rental or sale prices.
2. Cost savings: While there may be upfront costs associated with upgrading properties to meet the new EPC requirements, these improvements can result in long-term cost savings. Energy-efficient properties generally have lower utility bills, reducing operating expenses for landlords or homeowners.
3. Competitive advantage: Properties with good energy performance ratings may stand out in the market, giving landlords or homeowners a competitive edge over properties with lower ratings. Energy efficiency can be marketed as a desirable feature, potentially attracting more tenants or buyers.
4. Future-proofing: Investing in energy-efficient upgrades can help future-proof properties against potential future regulations or increasing energy costs. It may also mitigate the risk of falling behind market standards and facing penalties for non-compliance with future regulations.

Threat:

1. Financial burden: Complying with new EPC regulations may require significant investments in energy-efficient upgrades. Landlords or homeowners with limited financial resources or properties that require extensive improvements may find the costs burdensome, potentially impacting their profitability or affordability.
2. Market impact: Depending on the local market conditions and tenant or buyer preferences, there could be a temporary disruption or adjustment period as properties that don’t meet the new EPC standards may face lower demand or be less competitive. This could impact rental income or sale potential in the short term.
3. Compliance challenges: Adapting properties to meet new EPC regulations may involve navigating complex guidelines and finding reliable contractors or suppliers for energy-efficient upgrades. Compliance can pose logistical challenges and potentially delay renting or selling properties.

Assessing the risk through your business strategy

Ultimately, whether new EPC regulations are seen as an opportunity or a threat depends on factors such as the specific property, location, financial capacity, and the ability to navigate and adapt to the changing market dynamics. Evaluating the potential benefits, costs, and risks on a case-by-case basis is crucial for landlords or homeowners to determine the impact and decide how to respond to the new regulations.

To discuss the opportunities and threats and find out how you can assess the risk of EPC regulation changes, contact us