Landlords across the UK are increasingly exploring financing options as they prepare for potentially expensive energy efficiency upgrades required under proposed EPC regulations.
According to the latest Landlord Trends research from Pegasus Insight, property owners estimate that bringing a rental property up to the anticipated EPC C standard will cost an average of £11,713. With a large proportion of rental homes currently falling below this threshold, the potential financial commitment facing the sector is considerable.
Significant Investment Required
The research found that around 60% of landlords own at least one property that does not currently achieve an EPC rating of C. As a result, many property owners may need to invest substantial sums over the coming years if the proposed standards are introduced.
Despite the costs involved, landlord willingness to carry out improvements appears to be increasing. Nearly two-thirds of those with properties below the required standard say they intend to make the necessary upgrades, representing a notable rise compared with previous research.
Savings Not the Only Funding Source
While many landlords expect to use personal savings to cover at least part of the cost, a growing number are also investigating alternative methods of finance.
Some are hoping to benefit from government grants or support programmes, while others are considering further borrowing, additional mortgage advances or releasing equity from existing properties to fund improvement works.
The findings suggest there could be substantial demand for finance products tailored towards energy efficiency projects within the private rented sector.
Growing Importance of Energy Efficiency
Separate research from Pegasus Insight indicates that tenants are paying increasing attention to a property’s energy performance.
Around 44% of renters said an EPC rating is an important factor when deciding whether to rent a property, highlighting the growing importance of energy-efficient homes in the rental market.
As tenant expectations evolve, landlords may see energy efficiency improvements not only as a compliance requirement but also as a way to make their properties more attractive to prospective tenants.
Opportunity for Lenders
The research points to a clear opportunity for lenders to support landlords through the transition to higher energy standards.
Landlords identified several measures that could make upgrades more manageable, including access to additional borrowing, specialist green finance products, preferential mortgage rates for energy-efficient properties and simpler funding options for retrofit projects.
Industry experts suggest that access to affordable finance could play a crucial role in determining how landlords respond to the new requirements.
Financial Viability Remains a Concern
While many landlords are prepared to invest in their properties, the research highlights concerns about affordability.
According to Pegasus Insight, landlords generally view energy improvement projects as becoming financially difficult to justify once costs exceed around £9,000 per property. However, the estimated cost of achieving an EPC C rating is now approaching £12,000 on average.
This creates a significant funding gap that many landlords will need to bridge if they are to comply with future regulations without putting additional strain on their investments.
Impact on the Rental Market
The way landlords choose to fund these upgrades could have wider implications for the rental sector.
Some may proceed with improvements and absorb the costs, while others could seek to recover part of the expenditure through higher rents. There is also the possibility that some landlords may decide the financial burden is too great and choose to leave the market altogether.
As discussions around EPC requirements continue, access to suitable and affordable funding is likely to remain a key issue for landlords, lenders and policymakers alike.
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