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Landlords set to pass energy improvement costs on to tenants

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Written by: Lana Clements
09/03/2022
More than half of landlords improving the energy efficiency of their properties will look to recoup costs through rent, a survey has found.

Rents could rise as a result of landlords making changes to property, Shawbrook Bank warned after carrying out the poll of 1,000 respondents.

Tenants in London are most likely to see costs passed on to them, the research showed.

Landlords have to make improvements to their properties ahead of a proposed deadline in 2025 and according to the research, more than a third of rental properties were built before 1940 meaning they are unlikely to meet standards.

Some 23% of landlords admitted their properties were rated D or below, meaning they would be unable to begin new tenancies in 2025 without actively making improvements.

Investors estimate it would cost £5,900 on average to improve the energy efficiency of homes to the required level. However, landlords who have already made improvements spent an average £8,900.

Some 31% of respondents said they would have just enough to make improvements while 14% said they did not have access to funds.

The new regulations will push up rents, according to one fifth of landlords. Of those operating in London, 68% said they were likely to pass costs on to tenants – the highest proportion for any region. Landlords in the East of England were least likely, with just 38% saying so.

New regulation will motivate 15% of landlords to only purchase properties built within the last 15 years while less than a third will be inclined to buy a property which already holds a C rating.

While news of proposed changes becomes widely discussed, some 28% of landlords said their tenants had complained about their property’s EPC rating at least once. Some 16% said they had multiple complaints on numerous occasions. This could influence action, as 61% of landlords said they would be inclined to make updates to a property if tenants requested it.

Emma Cox, sales director at Shawbrook Bank, said: “Landlords will need to strike an important balance when it comes to making the necessary energy efficiency improvements to their properties.

“While work needs to be carried out quickly to prevent any void periods during a tenancy, having a clear plan in place as to how they will fund any necessary works is crucial. Our research has shown that landlords may be underestimating the costs involved, leaving them open to unexpected bills.

“As a result, tenants could be caught in the crossfire as landlords seek to recoup some of the costs. While tenants can expect to benefit from cheaper energy bills as a result of greater energy efficiency, any savings on bills could be outweighed by a market wide rent rise in 2025.”

She added: “For landlords unaware of the level of work that may be needed on their property, or properties, as well as any associated costs, speaking to a mortgage broker or lender sooner rather than later could help to paint a clearer picture. Understanding when they need to begin works to meet the proposed deadline will allow landlords the opportunity to fully assess their options and funding requirements.”

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