Government’s EPC Regulations Leave Landlords in the Dark.
For years, the government has dealt a heavy hand towards landlords. Sequential and crippling waves of anti-landlord legislation have put pressure on the buy-to-let market and tightened the government’s grip on profits. From the 3% surcharge in stamp duty to the removal of the 10% reduction of allowances on expenses, it seems as though no matter the Treasury, the investor always comes out short when dealing with the government. Rising house prices had the government raking in £14bn of Capital Gains Tax (CGT) alone over the 2021-2022 tax year. Well, now the government imposes more legislative obligations for landlords by enforcing them to make homes more environmentally friendly.
From 2025, under current proposals from the government, all newly rented properties will be required to have an EPC rating of ‘C’ and above. Current legislation allows properties with ratings up to ‘E’ to be rented out. Current tenancies will have until 2028 to comply with the government’s decisions. From the surface, these governmental decisions sound great and this sentiment sounds irrefutable. Who wouldn’t want more environmentally friendly homes? But landlords are left feeling confused and worried that properties will be left unrentable, and subsequently unsellable or un-mortgageable in the future. Some are simply unaware of the changes needed to comply with the regulations and are unwilling to spend the large amounts of money until more information is given.
These improvements include things like replacing the boiler, the windows, and installing thicker insulation and doors.
A study, conducted by Shawbrook found that 25% of landlords surveyed said they had very little knowledge of the upcoming changes. Long-time landlords of over ten years being unaware of the impact the near future will have on their financial futures. Another 15% said they were completely unaware of the necessary changes.
What should landlords be preparing for these changes?
The median Energy Performance Certificate (EPC) rating within the UK is 66 – 68, equivalent to band D. A quarter of landlords surveyed said they too had ratings of band D or lower. With more than a third of landlords owning properties built before 1940, this could mean a lot of work and money is needed. Landlords need to prepare their portfolios and summarise the costs within the timeframe of completion; just over 2 years.
Those landlords unaware of the changes can likely face a significant loss of income if work is not completed by 2025. As the cost of living crisis and interest rate hikes are sapping more and more money, it feels as though these government decisions can’t come at a worse time. It is hardly surprising, that at a time of such economic squeeze, landlords are succumbing to the pressure and having to sell.
Naturally, the consequence is a reduction in the market of rentable properties at a time of such high demand. In turn, this will hike the price of rents throughout the country to unaffordable levels for many. The same effects can apply to the buyer’s market. Moneylenders will be forced to reduce applications, increasing demand even further and pushing prices even higher. A net negative in the eyes of most, wouldn’t you say?
Landlords be aware
According to research conducted by the Financial Reporter, landlords could lose up to £9.5k a year if they fail to reach the 2025 deadline. Another 42% said they would have to ask their tenants to leave for the renovations, leaving less money in their pockets. On average, all the work could cost around £5,900, but only a minority have that amount on hand.
It’s not all doom and gloom though as buy-to-lets are still considered safe and appreciating investments. A well-maintained, buy-to-let property stands strong as a hedge against inflation. As we are about to hit 13% inflation by the end of the year (thanks to the poor economic decisions of our government).
Overall, we still recommend investing in buy-to-let properties – they’re one of the best assets you can attain. It is the government interventionist policies knocking investors down a notch when trying to climb the property ladder. Future projections don’t seem bright either, as the government’s ‘net zero’ plan by 2050 will bring additional restrictive policies. Sadly, it seems as though the public has flipped the bill thanks to the government’s fixation on green environmental policy. Unattended consequences to short-sighted decisions are inevitable, especially with centralised planning. The ripples span out too far for them to see. Will it feel like a drop in our beloved oceans or a bludgeon in a puddle? Only time will tell, but property is still your lifeboat.
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