Energy efficiency crackdown will trigger landlord exodus

An imminent energy efficiency crackdown will trigger an exodus of landlords from the sector, experts have warned.

The Government plans to introduce legislation to ensure all newly let rental properties have a band C Energy Performance Certificate ( EPC) rating by 2025. For existing lets, the deadline would be 2028.

Hamptons estate agents estimated that the total cost to upgrade England’s existing rental stock to band C would be £16bn. This would be equivalent to almost half a year’s rental income.

But in cheaper areas, the costs would be a much larger share of rental income. In London, the cost to landlords would be £2.9bn, equal to 26pc of the annual rental income from homes in the capital. In the North East, the bill would be far smaller, at £662m, but due to much lower rents, this is 83pc of the region’s yearly rental income.

Failing to upgrade the EPC will mean the property cannot be rented out, potentially making these homes unsellable or heavily discounted.

John Eastgate, of Shawbrook Bank, a lender, said that landlords need support from the Government and their mortgage providers. “Without this, we risk a substantial part of the private rental sector becoming unrentable, and therefore unmortgageable in 2025.” Lending body UK Finance has also called for landlords to receive more financial support to upgrade their properties.

Anita Matthews, 61, who has a portfolio of five properties, has already begun her exit from the sector as a result of the EPC changes. “I’m selling one each tax year and I’m giving my tenants two years’ notice. I sold one last year, I’ll sell one next April. All of them will be gone by the time the EPC rules come in,” said Mrs Matthews.

“I don’t want to make anyone homeless, but we simply cannot afford to make the upgrades. It would cost me £ 17,500 to make one band C. That would be four and a half years’ rental income from the property.”

A survey by the National Residential Landlords Association, a trade body, carried out earlier this year found that almost two thirds of landlords would be affected by the introduction of a minimum energy rating of C. Of these, 27pc would exit the market if regulations banned renting out properties ties in band D or below.

Across England’s 4.4 million lion privately rented households, s, this would be equivalent to around round 784,000 homes being sold up.

Hywel Morgan, 59, has a portfolio of 18 properties across ross Northamptonshire and Wales. ales. The rising costs of materials rials and labour will further increase rease the retrofitting by thousands, ands, he said. “If I was forced to do it, I would sell up.”

The Government has proposed roposed a £10,000 cap on how much uch landlords would have to pay, but ut investors

Landlord Hywel Morgan, who ho will sell his buy-to-lets if he is forced to upgrade say this would still be unaffordable.

John Isaacs, 52, has nine buy- tolets in Bournemouth and Wales. “If I had to pay £10,000 on one right now, I couldn’t afford it. If it costs that much to upgrade each of them, that would be £90,000 for me.”

Mr Isaacs is considering selling up or changing his properties into furnished holiday lets. “I am already thinking about it, but I have tenants and I don’t want to evict them,” he said.

It would be a blow to rental supply in Bournemouth, which has already been stretched by a surge in demand during the pandemic and a boom in buyers turning homes into holiday lets.

Energy upgrades bring clear cost benefits for owner- occupiers by cutting energy bills. But this is not a financial incentive for landlords, who usually do not pay these.

The estimated cost of upgrading a band D property to C is £6,472, bringing an annual energy cost saving of £179. Even if this meant a landlord could charge higher rents, it would take 36 years to pay back the initial investment.

There is also little litt incentive in terms of capital appreciation. apprec Analysis by Savills estate agents agen showed the price difference between betwee an average band C and band D property proper is just £5,582.

Lucian Cook, of o Savills, said anticipated interest rate rat rises, which have already raised the costs of buy-to-let mortgages, will further fu narrow landlords’ margins.

“Then there’s the th question of where do they get the lending lend to do the works,” said Mr Cook. “If that’s coming from their buy- to-let to-le mortgage, which they can no longer lo offset against their tax bill, that will be a longterm squeeze. squeez Clearly the risk is it will put pressure p on the supply of rentals, rental and that will push rents to the affordability limits.”

David Fell, F of Hamptons, compared the th changes with the introduction introductio of the 3pc stamp duty surcharge surcharg in 2016. Landlords will likely leave leav the market while new investor purchases p will fall, he said. Those who do keep buying will be incentivised to pile into the newbuild market, as 95 95pc of homes built in the past decade are band C or above.

‘I sold one last year, ar, I’ll sell one next April. l. All of them will be gone by the time the EPC rules s come’