Prime Minister Rishi Sunak has thrown his weight behind Housing Secretary Michael Gove’s proposals to delay deadlines for EPC improvements in the private rental sector.
In what appears to have been a Whitehall briefing to the Financial Times, unnamed government officials is quoted as saying the entire system of energy performance certificates required “fundamental reform”. The officials told the FT that the Prime Minister and the government supported delaying a deadline for landlords in England and Wales to meet mandatory efficiency standards beyond the proposed date of April 2025.
They said they EPC system had been originally designed “as an informational tool to meet the requirement of EU membership” and therefore was subject to likely reform now that Britain was ousted the EU. Earlier last week Sunak - building on the surprise Tory victory in the Uxbridge by-election - said he did not wish to “hassle” voters or “add to” household bills at a time of high inflation by adding costs linked to the environmental agenda. The UK is committed to hitting a net zero carbon emissions target by 2050.
On Tuesday ministers announced that they were delaying a new £1.7 billion-a-year UK recycling scheme until after the 2024 General Election following warnings that it would increase already high food and drink prices. Some 48 hours earlier - in a Sunday Telegraph interview - Gove gave strong hints that the EPC rental timetable would change.
The paper said “Mr Gove admitted that in his own department the government was ‘asking too much too quickly’ of landlords, who will be banned from renting out their homes unless they pay for green measures such as insulation and heat pumps to meet a new minimum energy efficiency threshold by 2028. Citing existing financial pressures on landlords [Gove] added: ‘I think we should relax the pace.’"
In recent days Rightmove revealed that 16% of homes listed on the portal had previously been let privately, with concerns over stricter Energy Performance Certificates now the main reason for landlords selling. Back in February research showed that Energy Performance Certificates were inaccurate at best, useless at worst, and easily rigged.
A Sunday Times report revealed the results of sophisticated and highly detailed research by a firm called CarbonLaces. The firm claimed EPCs overestimate energy use by up to 344% yet they remained a key part of current and expected legislation affecting landlords and other home owners.
CarbonLaces compared the EPCs of more than 17,000 homes with their actual use, as logged by smart meters every half hour for at least 300 days, to calculate their energy bills. The Sunday Times reported “the average metered gas and electricity use for all the properties studied was 125kWh per square metre a year — 91% lower than what their EPCs claim (239kWh/m2/yr). The lower the EPC rating, the bigger the overestimation. For properties with the worst rating of G, EPCs estimate they use 656kWh/m2/yr. Yet their smart meters show they use only 151kWh/m2/yr — a 344% gap.”
This inaccuracy is “quite staggering” said Madhuban Kumar, the founder of CarbonLaces.
Stricter EPCs - Rightmove warns it could take DECADES to retrofit
A new analysis by Rightmove suggests it could take literally decades for the private rental sector to conform with stricter energy efficiency requirements. The portal says vastly improved incentives are required to accelerate the progress of getting private rental and owner occupied properties to the government’s official target of EPC rating C or better.
Rightmove says that at the current rate of improvement it would take 31 years for 100 per cent of privately rented houses to be C or better; for privately rented flats the duration would be 16 years. For owner occupiers it would take a remarkable 43 years for all houses to be C or better, while flats would take 25 years.
A new ‘Greener Homes’ report by the portal shows that landlords are increasingly shunning lower-rated properties, with 61% saying they would not now buy a rental property below an EPC rating of C, up from 47% when asked last year.
Meanwhile for owner occupiers, only 4% of homeowners have plans to have a heat pump installed; however, sellers who have improved their home from an EPC rating of an F up to a C could command an average price premium of almost £56,000 on top of the local house price growth.
The report reveals that 60% of homes for sale on Rightmove – and 50% of homes available to rent - have an EPC rating of D or below. The report suggests that incentives to be offered could include stamp duty rebates if a new buyer makes green improvements in the first few years of purchase; more significant incentives for energy efficient homes for both new mortgages and remortgages; more grants or tax benefits for green technology such as electric car charging points and solar panels; and enabling new innovations that speed up the creation and implementation of energy efficient technology.
Rightmove analysed 300,000 properties that sold twice over the last 15 years and had a new EPC issued, and the results show a correlation between green improvements and the increased value of a home. The analysis removed the local house price growth that the home could also have benefitted from and factored in the square footage of the property.
A property moving from an F to a C rating could increase a property’s value by an average of an additional 15%, or almost £56,000, when looking at the current national average asking price of £371,907. Agents are increasingly including the EPC rating in their property descriptions as a selling point if it is in the A to C range. The number of listings that mention these EPC ratings has increased by 24% on a year ago, and up by 59% on 2019.
Other green features are up too, with a 40% increase in electric charging point mentions versus last year.
For the rental sector the jump in energy bills appears to have had an impact on the type of home that tenants are looking for. Nearly one in five tenants say a property’s energy efficiency is a major factor when choosing where to live. Rightmove’s report shows that 40% of landlords with just one property say they are more likely to sell up than improve their property; and 33% of all landlords who own lower EPC rated properties plan to sell them rather than make improvements to their rating, amd 61% of landlords say they would not now buy a rental property below an EPC rating of C, up from 47% when asked last year.
Rightmove spokesperson Tim Bannister says “It’s clear that the current incentives aren’t yet big enough to make people sit up and take notice, and even the incentives that do exist aren’t easy to find out about. The benefit of making green improvements can be seen in the overall premium that a seller can command. Of course, improvements that make a home more energy efficient could also mean the condition improves, such as installing new windows, and so owners will be weighing up the cost of improvements versus the return they can get when they come to sell. But the end result of making improvements is not just a refurbished home worth more money, it’s also a greener home. In order to shift the demand to greener homes, incentivisation and education is key. The ‘price of cosy’, or a better insulated home, is hard to quantify until people see how it can change how they live for the better, and they need to be able to afford it.
Adoption at scale will take time and there are clearly areas that need more attention than others. Houses are much more energy inefficient than flats, and the sales market is lagging behind what we’re seeing in the rental market. The challenge right now is that there are not enough suppliers and equipment for the greenest option to be the most affordable option for home-owners and landlords. We need to wait and see what the government proposes or what green finance options become available. Affordability will remain a challenge unless the incentives are big enough.
The days of building energy inefficient homes is already over, and we need to get to the point when running an energy inefficient home is a thing of the past. People need to know what to do, in what order, why they are doing it, and what benefits it will bring. Our analysis does show that our housing stock is going greener, but more needs to be done to speed it up.”
Rightmove reports huge landlord exodus as EPC worries kick in
Rightmove has revealed that 16% of properties currently for sale were previously available on the rental market, a figure which is up from 13% before the pandemic. The portal, in its latest rental market snapshot, says a sentiment survey it has conducted shows that landlords are currently facing challenges from multiple directions.
Government sentiment towards the industry, rising taxation and increasing compliance requirements topped the list of landlords’ concerns in a recent study by Rightmove. A quarter are also concerned about the rising cost of buy-to-let mortgages. The data suggests landlords are particularly concerned about their properties with a lower EPC rating, ahead of proposed changes to EPC requirements from the government.
Precisely 33% of landlords who own lower EPC rated properties plan to sell them rather than make improvements to their EPC rating, compared with 20% who planned to sell last year. However, despite these challenges, landlords value having a good tenant in their home and are determined to keep good tenants for longer.
The majority (57%) of landlords say that on average, tenants choose to stay in their properties for longer than 24 months, with only 8% saying they stay for a year or less. Meanwhile the portal says that average asking rents for new tenants outside of London reach another new record this quarter of £1,231 per calendar month.
Despite quickly rising prices, rental homes are continuing to let at speed and many landlords are still being met with long queues of prospective tenants wanting to view and rent their property. The current average time to find a tenant for a home to rent is 17 days, its quickest since November 2022. Tenant demand continues to exceed even last year’s frenetic levels and is currently three per cent higher than at this time in 2022 and 42% higher than June 2019.
The gap between supply and demand has slightly narrowed compared to last year, with available properties to rent up by 7% compared with June 2022, though this figure remains 42% below 2019.
Generation Rent demands EPC change to Renters Reform Bill
Activist group Generation Rent is now demanding a change to the Renters Reform Bill to help tenants with energy bills. The group claims five times as many homeowners have received energy efficiency grants than private renters, despite tenants allegedly being at much higher risk of fuel poverty.
Since 2010, fuel poverty has fallen by 35% among homeowners and by 54% among council tenants - but the activists say that amongst private renters it’s just 4%. A statement from the group says “Generation Rent is calling on the government to give private renters better protection from eviction and rent rises to ensure that they enjoy the benefits of energy efficiency funding and so have a stronger incentive to apply for grants.”
It continues to say that one in four private renters lives in fuel poverty, a higher rate than any other tenure. Although there are three times as many homeowners as private renters, the number in fuel poverty (1.33m) is only slightly larger than the number of private renters in fuel poverty (1.19m).
Energy efficiency measures that bring a home up to EPC Band C will lift a household out of fuel poverty. However, Generation Rent complains that homeowners have enjoyed “the lion’s share of the grants” available to improve domestic energy efficiency. It also states “A major obstacle to take-up of grants in the private rented sector is poor security of tenure, which allows landlords whose properties are upgraded to raise the rent, cancelling out any energy bill savings, or evict the tenant in order to sell the improved property. While the Renters (Reform) Bill aims to improve protection for tenants from arbitrary evictions, it will still allow these practices so tenants will still have little incentive to apply for a grant.”
So Generation Rent - which at the time of its introduction into Parliament supported the Bill - is now calling on the government to amend it “to protect tenants who receive an energy efficiency grant.”
It wants tenants who receive an energy efficiency grant to be protected from eviction for six years and not to be subject to any increase in rent as a result of grant-funded improvements. Landlords should also be required to raise the energy efficiency rating of their properties to C, to oblige them to accept grant-funded works to their property” says the group.
Dan Wilson Craw - the former deputy director of the group, now with the title of deputy chief executive - says “this money is supposed to tackle fuel poverty, but is bypassing the people who need it the most. There is understandable squeamishness about handing money to landlords who stand to make a profit, but the longer the grants system fails to work as it should, the longer tenants suffer and the further we are from meeting climate targets. With measures to make sure the financial benefit of grants goes to the tenant, by preventing evictions and rent increases arising from the home’s improvement, we can slash carbon emissions and jump-start improvements to renters’ living standards.”
Landlords face hefty bill for EPC upgrades
PC rating of C, according to new research. Letting agents Savills reveal 2.9 million homes in the PRS need upgrading to meet proposed regulations to bring all properties to EPC C. Though the plans have not been made into law, ministers have previously proposed that by April 2025, newly rented properties in England and Wales will need to meet a minimum EPC standard of C – tougher than the current E standard.
The regulation is also slated to apply to existing tenancies from 2028.
Landlords struggle to cover their costs
The bulk of the problem remains with older housing stock as more than two-thirds (71%) of homes built before 1950 were given an EPC below C in 2021-22, while just 12% of property built post-1995 need improvements.
Savills analysis of EPC recommendations reveals that the cost of fully upgrading properties to a maximum EPC C ranges from £8,807 (EPC D) to £27,366 (EPC G)
Lucian Cook, Savills head of residential research says “this analysis underscores the enormity of the challenge facing the private rented sector at a time when many landlords struggle to cover their costs.”
Energy-efficiency targets could be delayed
Michael Gove recently announced that energy-efficiency targets for the PRS could be delayed due to financial pressures for landlords. Mr Cook says "the delay will reduce some of the burden for landlords but many still face challenges. If the programme to introduce these changes is pushed back, it will reduce some of the immediate financial pressure on landlords and give them more time to plan works effectively. However, current mortgage costs and the end of assured shorthold tenancies are still likely to cause some buy to let investors to re-evaluate their position, constraining supply and adding to upward pressure on rents.”