Work with Landlord Clients on Energy Efficiency Responsibilities

Originally published by MortgageSoup

It will be of no surprise to anyone active in the buy-to-let/private rental sectors that this Government is not rowing back on its commitment to improve property standards, particularly with regards to energy efficiency and an attempt to keep energy bills down for tenants.

While announcing a further review and consultation amongst tenants and landlords into the ways and means by which the Government might bring in new standards for PRS properties, it outlined how it believes approximately 500,000 rental homes could be lifted out of fuel poverty over the next five years.

Clearly, the recent increase in energy prices, coupled with the large rises in the overall cost of living, have focused hearts and minds in this area, and we as an industry must acknowledge there is a considerable amount of work to be done in order to make the improvements the Government clearly want to see.

At the moment, the Department of Energy estimate that just under half of all privately rented homes in England meet EPC level C. Lest we forget, all private rental sector homes will need to be at least a C by 2030, which seems like a long time away, but one has to surmise that the sooner landlords can achieve this the better.

UPGRADE COSTS

The Department of Energy estimate that upgrading properties to reach this EPC level is going to cost landlords between £6,100 and £6,800. If that seems a little steep, then you have to understand and accept that those properties which have an EPC level of E, for example, are going to need much more work, and therefore investment, in order to make the grade.

We are not talking about some energy efficient lightbulbs and potentially some insulation added to a loft here, but much more cost-intensive measures, potentially double-glazing, new boilers, dare I say it, solar panels, and whatever else might be required of the landlord to get that C level.

The Government believes that by moving a property to C, the tenants could save up to £240 a year on their energy bills, which is not to be sniffed at especially considering those living at these properties can do little about the energy efficiency of their homes if they do require more of these ‘big ticket’ changes.

That said, the Government does at least appear to be cognisant of the potential cost involved for landlords who might need to conduct (and pay for) this work. The consultation will look at caps per property per landlord for major upgrades – £15k – with support also available from the Boiler Upgrade Scheme and the Warm Homes: Local Grant which is due to start up next year.

For those with properties which charge lower rents, or are in lower council tax bands, it is looking at affordability exemptions for landlords, which would mean a lower cost cap of £10k.

FINANCE OPTIONS

Now, for landlords who have multiple properties with lower EPC levels, it is perhaps not surprising they are seeking the ways and means by which they can finance this work in order to move them up to a C grade. And, clearly, this is where advisers have the potential to get involved and to ensure they can get the finance they need.

There are, of course, already many EPC A-C mortgage options out there – Fleet offers these – but they are likely to be much more of a carrot for landlords, i.e. cheaper mortgage rates, in order for them to think seriously about conducting these upgrade works now.

What landlords also need is further incentives in order to take on that work sooner rather than later. For instance, we offer a £1,000 cashback incentive for any landlord who takes out a fixed-rate mortgage with us, and who moves their EPC up to the required C level during the term of that special deal.

It may well be that some landlords more than cover the cost of the work involved, while others can offset it against the financial requirements needed to get to C.

Overall, advisers should certainly be making their landlord clients aware of these new responsibilities, the potential grants/schemes that might help them, the offering from lenders in terms of helping to finance the work and securing cashback, plus of course the ability to secure a mortgage that provides a monthly saving on what they were previously paying, which again can be used to pay for the work needed.

It, of course, requires a strategy and a timetable, and an understanding of when mortgage finance is coming up for renewal, and what best fits the landlord’s wants and needs in this area. But, it should certainly be part of the conversation for all buy-to-let clients, who with the right advisory and lender support, will be able to meet any deadline and responsibility, upgrade the property as required, and hopefully keep their tenants (and profit) happy for the long term.