1,459. That’s the number of private rented sector properties that will need upgrading every single day if landlords are to meet the Government’s new minimum energy efficiency standard (MEES) by 1 October 2030.
With 1,713 days between the launch of the Warm Homes Plan and the implementation deadline, the scale of the challenge is clear. Government data shows that around 2.5 million rental homes currently fall below EPC C and achieving compliance will demand coordinated action from landlords, lenders, policymakers and advisers.
But at least we now have some indication of the direction of travel. These proposed legislative changes will still be subject to the Parliamentary approval process, but after years of speculation and consultation, this, at least, is welcome.
The industry will be sifting through the Government’s response to its ‘Improving the energy performance of privately rented homes’ consultation, so this is a first take, but there appears to be some positives compared to the original proposals. Delaying the implementation of the new requirements by two years is welcomed, even though more time would have been pragmatic.
Reducing the minimum landlords need to invest per property from £15,000 to £10,000 before a 10-year exemption is applied is also sensible, as is potentially applying an aggregate approach across portfolio landlords. The Government estimates the average spend will be £5,400 – we will see.
Importantly, the Government has conceded that investments to upgrade the energy performance of property can be tax deductible, which should sweeten the pill for many landlords facing the prospect of expensive upgrade bills. Repositioning the spend as investment, which will ultimately be reflected through an increase to a property’s value, makes the prospect more compelling.
The Government has also stated that any investment made from October last year will count towards the spend cap, as well as ensuring that any property that meets EPC C under current EPC measures by 1 October 2029 will be compliant until that EPC expires. This removes the barrier for landlords to start works on their properties until the outcome of a separate consultation on the future profile of EPCs is known.
There are other sensible measures; implementing an adjustment to the spend cap for low value properties makes absolute sense, particularly for landlords in the north of England, while the expanded list of exemptions should mean more homes that simply cannot be upgraded are captured.
On the downside, not holding short-term lets to the same standards could result in more properties switching over to that segment of the market, although the Government has said it may review this position in the future.
For the mortgage industry, there are opportunities, as well as challenges. Landlords will require finance to fund upgrades, and it is up to the sector to design products that meet this demand. We launched our refurb-to-let product last year and we will need to see more innovation in product design to allow landlords to undertake major works either with tenants in situ or between tenancies.
They will also increasingly target properties with an existing EPC rating of C or above, as well as new build. We are certainly seeing both elements across our new business flow, with around half of new business at EPC C or above.
For mortgage brokers, educating clients about the changes coming down the line will be important. Properties purchased today at EPC D and E will need to be upgraded and having those conversations can help landlords plan. We know landlords typically buy and improve, but understanding key implementation dates will be important.
The starter gun has been fired and we must all now look towards 1 October 2030. Remember, 1,459 properties per day. It’s a tough challenge, but one the sector can rise to.
Louisa Sedgwick is managing director of mortgages at Paragon Bank
