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Majority of landlords unlikely to buy properties with low energy ratings

Nick Cheek
Written By:
Nick Cheek

More than two thirds of landlords are less likely to buy a property with an Energy Performance Certificate (EPC) rating of C or lower due to proposed legislation in the rental sector.

For portfolio landlords or those looking to move into buy-to-let investment, energy efficiency is becoming a top priority.

According to research from business research group BVA BDRC on behalf of mortgage lender Foundation Home Loans, 68% of landlords will not consider a property which is low rated. 

For those planning to buy in the next 12 months, 59% will be looking at a property with an EPC rating of C or above, while 29% will go for properties rated D to E. 

The survey also found that those looking to sell were more likely to get rid of inefficient homes. 

When asked about the EPC rating of their portfolio, the average landlord was found to have 2.9 properties with a rating of D or below. For those with larger portfolios, the number rose to 9.8 properties. 

George Gee, managing director (commercial) at Foundation Home Loans, said: “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.  

Renovation plans under way

Two thirds of the 752 landlords polled said they were prepared to carry out works to improve the energy efficiency of their stock so they could continue letting it out, but a fifth said they would sell or not re-let. 

Nearly two thirds said they would dip into their savings to fund the renovations, while 30% plan to increase rent to cover the cost. Nearly a fifth will seek a government grant or funding, a tenth will consider a loan, 8% will release equity and 6% will go for a further advance.

On average, respondents believe the cost of renovation will be £8,300 per property while those with larger portfolios expect to spend £9,000 per property. 

For the most part, landlords seem aware of the proposed rules which suggest new rental properties must have an EPC rating of C or above by 2025, while older stock must reach this deadline by 2028. 

Some 68% of respondents said they knew about the proposals and understood what they meant, a quarter knew but did not understand the details and nine per cent were not aware at all.