Big Ben and Parliament against cloudy sky

Categories: epc | government and politics

Whilst Rishi Sunak has announced he is scrapping EPC regulations, this may not be the last we see of them.

Energy Efficiency Certificate (EPC) targets were part of the Net Zero policy that gave a deadline for all rental properties to achieve an EPC rating of at least C by 2028 (originally 2025).

Last week, the PM announced that this EPC target has now been scrapped, and over the weekend the government task-force designated to manage the project was disbanded.

To give context on the type of costs this would involve, a study conducted by a leading real estate company found that landlords with properties rated D had to spend, on average, £5500 in upgrades to achieve a rating of C. This implies that properties with worse ratings could cost a lot more.

Reaction from landlords

A survey of 1000 landlords by specialist lender Shawbrook, found that 80 percent of those surveyed ‘had already prepared’ to make the upgrades to achieve a C rating.

28% of landlords had been influenced in their investment decisions, based on the energy rating of prospective properties.

46% of landlords had invested between £500 and £20,000 on their properties, although the data doesn’t make clear if that was a direct response to the potential regulation or not.

While there may be sighs of relief from a lot of landlords, arguably many may feel frustrated with Sunak’s decision to ditch these targets, where they have already invested in upgrades. Had the regulations been imposed, it was set to control whether or not a property could continue to be let out.

At a minimum, and even though many landlords were yet to pay for upgrades (17%); given the amount of focus and discussion on the subject and significant concerns around the costs involved, landlords could be forgiven for feeling very messed around.

Emma Cox, managing director of real estate at Shawbrook, reflected that whilst it may be good news, landlords should keep upgrades on their agendas:

Scrapping the impending EPC regulations might free up capital in the short term for landlords who haven’t yet invested in improving the energy rating of their properties, but while policies shift, climate change is going nowhere, and energy efficient buildings will remain central to net zero plans.

Rules might not be changing as soon as 2025, but professional landlords with modern, energy efficient stock will be in the best position to attract tenants, as well as reduce potential voids, and importantly, be prepared for future legislative change.

Steve Cox, Chief Commercial Officer at specialist lender, Fleet Mortgages, had this to say:

There’s some conjecture on this topic but our view is that this is not a scrapping of the minimum EPC levels for property within the private rental sector, but a delay.

If that is the case, then setting a more realistic timeline – particularly in a sector which needs all the supply it can get given the demand for property from tenants – seems fair, rather than operating a cliff-edge.

Our best guess is that, at some point in the future, landlords will still need to get their properties up to EPC Level C and above, and the timeline for that will become clearer after the General Election.

Again, we are working off the basis that this is not a scrapping, and that landlords should still use the time available to assess what work might be needed on those properties to improve energy-efficiency – after all, measures to become more ‘Green’ are in the best interests of all stakeholders, not least tenants who should benefit from lower energy bills.

Could a Labour government see the position reverse?

National Residential Landlords Association (NRLA) deputy policy director, Meera Chindooroy, has pointed out that this may not be the last we’ve seen of EPC regulations:

Rishi Sunak’s speech emphasised the challenges of high costs for both landlords and tenants, as well as the importance of financially supporting property owners to complete works.

But does his claim that ‘we’ll never force any household’ to make ‘expensive upgrades’ hold?

The reality is that we are now in the run up to a general election. The Prime Minister evidently believes he will remain in power, but there is a very real possibility that we will have a Labour-led government in a year or so.

Net Zero – and its associated policies – has shown itself as a useful battleground ahead of the election, as seen in the Uxbridge and South Ruislip by-election.

The Labour Party has yet to respond in full to Rishi Sunak’s announcement, but Ed Miliband, the shadow secretary for climate change, has already said he is ‘in favour’ of requiring rented properties to meet a minimum EPC C rating.

With Labour leading in the polls, and the shadow secretary for climate change, Ed Miliband, already in favour of minimum EPC ratings, there is a risk that this legislation could be reintroduced.

If this were to happen, it could lead to a great deal of uncertainty in the industry. It is easy to imagine that if Labour did turn the tables again, landlords would hold off doing anything towards it until any regulation had received Royal Assent and is passed into law, for fear of more back and forth.

Time will tell, as will the result of the election, and until then landlords are going to be left hanging on the matter.