EPC ratings affect landlord investments

A recent landlord survey has found that Energy Performance Certificate ratings are influencing landlord investment decisions, given the 2025 regulation changes.

Specialist mortgage lender, Foundation Home Loans, commissioned a survey conducted by BVA BDRC. Within it, two-thirds of landlords (68%) say they are less likely to purchase properties with an EPC rating below C.

This shift in attitude towards EPC ratings could have significant implications for the UK rental sector, as the government has proposed a minimum EPC rating of C for new rental tenancies, from April 2025 and for existing tenancies by 2028.

The survey, which was conducted in Q4 2022 and comprised 752 online interviews with landlords, found that respondents reported that almost four in ten of their rental properties did not currently meet the level C target.

Survey findings provide interesting data, that on average, landlords own 3 properties that have an EPC rating of D and below, whilst large portfolio landlords (of 11 properties) have 10 properties that have an EPC rating of D and below.

Moreover, according to the survey, almost 60% of landlords, are planning to purchase a property with an EPC rating of C or above, while less than 30% state that they are on the look out to purchase a property that has EPC rating of D or E.

This suggests that landlords are increasingly factoring in the EPC level of a property, when considering purchase opportunities, and that higher-rated properties may become more desirable and could command higher values.

Lack of awareness

However, the survey also revealed that landlords are not necessarily fully informed about the details of the government's proposed EPC minimums.

Even though the majority (66%) of landlords said that they knew what are the upcoming changes and how it affects their properties, a quarter of landlords were not sure what the new regulations entail, while 9% of the respondents were unclear of the upcoming regulation changes at all.

It indicates that there is still work to be done in terms of raising awareness and educating landlords about the importance of EPCs and the government's proposed minimum standards.

Nevertheless, survey findings suggest that 66% of the respondents reported that they are still planning to undertake the necessary improvements in order to achieve the required EPC rating of C and remain in the private rental sector.

Alternative options

20% of survey respondents state that they do not plan on refurbishing their properties and would aim to sell. This suggests that some landlords may view improving the EPC rating of their properties as an unnecessary expense, or may prefer to exit the market altogether, rather than pay to comply with the new standards.

Landlords believe that in order to attain an EPC rating of C or above, the average cost to refurbish their properties would range be around £8,000 per property.

This suggests that some landlords may be put off by the anticipated cost of improving their properties, although it's worth noting that the long-term benefits of higher EPC ratings in terms of energy efficiency and tenant demand, may outweigh the short-term costs.

Managing director at Foundation Home Loans, George Gee, concluded:

“Interestingly, the EPC level is now a real factor when landlords are looking at purchase opportunities, with over two-thirds saying they wouldn’t purchase a property unless it had achieved the necessary level. That is a real shift, and one that is likely to filter into values if these higher-rated properties become, as is likely, more desirable.”

Getting ahead

Overall, the BVA BDRC survey highlights the growing importance of EPC ratings in the UK housing market, and the need for landlords to take these ratings into account when making investment decisions.

While there is still work to be done in terms of raising awareness and educating landlords about the importance of EPCs, the government's proposed minimum standards are likely to become increasingly important in the coming years, and landlords who fail to comply may find themselves at a disadvantage in the market and possibly unable to let their properties in future.

As such, it may be wise for landlords to invest in improving the energy efficiency of their properties sooner rather than later, in order to stay ahead of the curve and ensure that their properties remain competitive in the long term.