Over three-quarters of landlords are willing to spend up to £3,000 to upgrade each of their properties to an energy performance certificate rating C in order to meet new regulations, but the average cost for these improvements is over £10,000, according to Paragon Bank.
It found that 77% of buy-to-let owners are willing to spend £3,000 to comply with government proposals that new tenancies must have an EPC rating of at least C by the end of 2025, in its Rental Sector Energy Challenge report. For existing tenancies, this will apply from 31 December 2028.
But the bank estimates the actual cost of these upgrades, which include a range of features such as replacement windows and loft insulation, is £10,560 per property.
In England, 42% of homes, and 37% of properties in Wales, have an EPC rating of C or higher, according to Office for National Statistics data released in January.
The bank’s study also provided details on the mix of funding landlords intend to use to pay for these upgrades. It says Six in 10 said that they would use savings, making it the most popular source of potential finance, followed by 27% who say they would increase rent.
It adds that 19% would rely on government funding, 8% would take out a further advance from a mortgage lender or take out a loan, and 7% would release equity from their portfolio.
These government proposals may also influence the type of properties landlords are prepared to buy, with 68% of landlords stating that they are less likely to purchase homes with EPC ratings of D or lower. Although 21% of BTL owners say it would make no difference to their future acquisitions, while 4% add that they would be more likely to purchase a property if it was rated below EPC C.
Paragon Bank mortgages managing director Richard Rowntree says: “It is encouraging to see that landlords anticipate that future portfolio expansion will target properties rated EPC C or above, bringing more energy efficient properties into the private rented sector.
“Of course, this is only part of the issue as data shows that a large proportion of current private rented sector stock is below the standard required by the proposed new regulations.
“The apparent disparity in what it is likely to cost to meet these standards and what landlords are willing to spend helps to illustrate the financial challenge the new regulations would pose to BTL investors.
“There remains a lot of uncertainty around the proposals, so the sector needs some clear guidance from the government. With this, my hope is that landlords will have a better understanding of how the new regulations would impact them and the resulting financial support they would require.”
The bank’s report surveyed 700 landlords.
