About The Suggested EPC Regulation Changes | Podcast

Since this Podcast, there have been several announcements by the UK governments regarding their EPC plans.

Rishi Sunak, in September 2023, scrapped plans to introduce a mandatory EPC rating of C or above by 2025 for residential landlords. However, as of August 2024, the new Labour government have reintroduced these plans with an extended timeline. Under these new plans, landlords will have to meet an Energy Performance Certificate (EPC) rating of Band C by 2030. They have also pledged to work with social housing providers to help them meet this goal - though have not yet defined how.

Related: How To Improve Your EPC Rating

EPC Regulation Changes | My Property World

The Panel

Will Mallard – presenter

Logan Ransley – Co-founder of Landlord Studio property management software.

Landlord Studio is a rental property accounting and management solution for self-managing landlords. We currently have over 30,000 properties on the system. We help landlords stay organised and operate in a professional and profitable way. Find out more.

Christine Janaway – Chartered Surveyor, CJ Residential

My name is Christine January. I’ve been a chartered surveyor since 1989. I own a lettings business that operates across the north Cotswolds and I’m also an investor in both residential and commercial property, focusing more these days on social and supportive care type accommodation.

Adam Ludlow – Portfolio Landlord of over 25 years

I’m a portfolio landlord. Historically I was an accountant by trade and worked in mergers and acquisitions. I gave that all up a few years ago. At the same time, developing my own portfolio, predominantly up in the Northeast, and working on some bigger projects at the moment too.

Listen to the full episode on the My Property World podcast here, watch the video, or read the edited transcript below.

What Landlords Need to Know About Upcoming EPC Regulation Changes

Will Mallard

What do you think is the number one thing that is on landlords’ minds around EPCs?

Christine Janaway

The question that we all want to answer is what am I supposed to do about this? You know, if they raise the minimum to a C rating, how on earth am I supposed to manage that? How much am I gonna have to spend? Will there be a cap on expenditures? Just how is it going to impact me, and my cash flow basically?

Logan Ransley

This touches back on the conversation we had in the last podcast which is about this gap in the market between professional landlords and I guess your accidental landlords. This seems to have much more of an effect on small portfolio landlords because they have less information, they don’t understand it as much, and it’s going to have a greater financial impact on them because they are working with smaller margins.

Christine Janaway

Yeah, definitely. Some landlords with just a few properties have said to me have even asked me, is there any way around it? That’s the first reaction rather than, how do I go about it? Who do I speak to get some proper professional advice?

Will Mallard

An interesting wider topic might be, what are the government’s longer-term policy objectives? There’s an enormous sort of movement towards environmental sustainability. But talking some people struggle to understand why someone’s thinking about the bigger picture in this way.

From the government’s point of view, they want houses to be safe, healthy, and sustainable. EPCs are just one part of this. As the government pushes landlords to operate in a more professional manner, with increasing regulations and expenses, there’s a choice that people have to make, to continue to be a landlord or to sell up and redeploy their capital elsewhere.

Christine Janaway

The UK has sort of been patting yourself on the back a little bit about how much we’ve reduced our carbon emissions over the past 20 years. But apparently, something like 90% of that has come just from simply closing down coal-fired power stations. Virtually no other category has contributed towards carbon emission reduction.

The next biggest emitter is property. So, if they could possibly achieve it, it would result in a massive reduction. And of course, we’ve got this net-zero carbon target. So, property is a really, really massive element of that.

Adam Ludlow

The conflict that I have is that the legislation and the enforcement they’ve put around EPCs don’t affect homeowners. If, for example, only one in every eight properties in the UK is a landlord property and the other seven aren’t. If you’ve got an owner of a property who doesn’t sell it, lives in it all of their life, I don’t believe under the current legislation, they’re bound to do anything to improve the efficiency of the property or even get an EPC done unless they go to sell it.

Christine Janaway

I agree. Although there are rumblings and rumours that it’s going to apply to owner-occupied property at some point. The problem is, we’ve got a conservative government, they’re very skewed towards the owner-occupation. And I think if they took that step to say owner-occupiers have to get gas safety certificates, they have to get an EPC and improve their efficiency rating, we might have the first revolution in many decades.

I think that’s what’s on most people’s minds is, who is going to pay for it?

Will Mallard

There’s also a whole element around what becomes mortgageable. Banks absolutely will not be funding properties that do not meet the current compliance standards. One example, I can give, Adam and I are involved in a number of property ventures, one of which involves a block of flats. In one the boiler needs replacing and we’re faced with a choice, do we go electric? What are the benefits, the cost implications, and the long-term EPC implications?

Adam Ludlow

We’ve looked at it and one of the things that we can do is we can put in another combi-boiler which was about £1500, give or take, and that will do. If we go down the electrical route, there are fewer qualified electricians for installation, fewer actual options, and they’re more expensive, and I’m not even sure how that would work for heating and water.

Will Mallard

There’s a changeover which has created a question and I think because it’s a block of flats, as we get further down the track and tenants turnover, and the EPC requirements start going up these types of choices start playing more and more into your long-term decisions. Do you go electric earlier for potentially longer-term savings? Do you do the installation steps that you are going to need to make that next level? How early do you do that? At what point does it become economic?

Logan Ransley

So this presents a bit of an issue in the market where, if the properties are going to cost too much to bring up to standard for EPC, then landlords need to source financing for it. And if the banks are not going to finance it, and they can’t get the financing anywhere else, then they’re going to be forced to sell. Is that kind of where you see this heading?

Christine Janaway

That is one outcome. The other slight wrinkle to all this is that if you’re a buy to let landlord if you do any improvements to your rental properties, which I’m sure the government would like you to do, you can’t actually offset any of that against your taxable income. You’ll have to wait until you sell and then it comes off your capital gain.

Personally, I’ve never understood why some improvements cannot be offset against income because I think that would encourage a lot of landlords to do the work that the government wants them to do, like improving the EPC and putting in new boilers to work towards this target that we’re all supposed to be working towards of net-zero.

Logan Ransley

So, if you’re providing any advice for landlords where would you suggest landlords start, how should they start preparing?

Christine Janaway

You’ve got to get on the front foot. This is likely to come in. So, have the EPCs done on your properties if you don’t have them already.

The problem with the EPC’s is that they don’t really reflect reality today. I mean, if you’ve got all-electric heating, for example, they give you a bad rating, whereas gas boilers are going to be phased out. So what is the alternative to electric heating?

Maybe get the EPC, see what they recommend, which I always find a little bit dubious, and then go to someone who really knows what they’re talking about, and figure out how you can improve the rating of your building in the most cost-effective manner possible. There’s always a balance between what you can achieve, and how much it costs.

Will Mallard

Why do you think the government’s pushing for these new EPC ratings?

Adam Ludlow

I suppose it’s the right thing to do. Everybody wants to save energy. It helps the people who live in the properties because of the reduced costs, and it helps the environment. It’s a win-win. So, I don’t have a problem with that as a principle. I think it’s just about how we get there.

Christine Janaway

I ask the question, and I’m gonna do it, who’s gonna pay for it? How are we going to pay for it? And where are we gonna find the manpower or woman power and the materials?

Adam Ludlow

I would say the people who do the EPCs need to be upskilled as well. I’ve found good EPC people and bad EPC people and there needs to be better training and more standardisation.

Christine Janaway

Yes and often they suggest things that are not practical at all. You got a small terraced house, and they suggest internally insulating the walls, not only would the tenants have to move out, but you’d reduce the size of the rooms even further. If they’re already quite small you might look at external insulation but there are only some properties where that can be done. And it’s an expensive job, it changes the look of the property.

Then you’ve got those conflicts that you that arise when you want to put, say, double glazing into a listed building. The conservation officer just will not allow it.

Will Mallard

As a landlord your EPC’s are part of the buying decision, it’s linked to your financing requirements at what point do you think it will become a factor in a rental decision from a tenant’s perspective?

Adam Ludlow

I think tenants are much more interested at the moment in location, quality of accommodation, and the price that they pay. If you think you know if for example, their rent is £900 pound a month and their gas-electric bill is £100 a month or whatever it is. The difference between an energy-efficient property and a non-energy-efficient property you know might add another £20 or £30 onto the gas or electric bills. It doesn’t make the same difference as the price of the rent. They’re interested in what a property costs. That being said, energy efficiency does tie into the quality of the property, for example, they want one that’s well insulated for winter.

Will Mallard

In general, the policy comes from the central government, they write policy, they create legislation, then that gets shipped down to a local government level and it’s the councils that are charged with enforcing. There’s a variety of approaches and resources available and actually applied which varies from council to council, from year to year, and from location to location. Now, you know we were talking about your dad’s development project Logan, in Cornwall, I think that that’s an element that might be worth exploring a little bit?

Logan Ransley

Yeah, so this was actually one of my colleague’s dad’s, he is currently doing a development project on an old piece of family land in Cornwall. They’re currently going backward and forward with the local council and the architecture plans keep getting rejected because they have to not only abide by government regulations but by the council’s regulations too. It has to fit the local aesthetic. What this means, is that even on a brand new build, the highest EPC they can possibly achieve is a band C. So, I guess it’s a question of how are the government going to reconcile this conflict? Even if people want to be compliant they may not be able to.

Will Mallard

A new build development, this is kind of you’ve got this going on in the background at a macroeconomic level as well. There are not enough houses, the papers point towards being in the middle of a housing crisis, which has been going on for a number of years now. People talk about who’s fault this is but the only actual solution is either you get rid of lots of people, or you build more houses, but the barriers to building more houses are huge, there’s government and local council legislation as you were saying Logan, plus taxes, and restriction on builders who actually build.

Christine, what does the government need to be doing if they want to push for more sustainable housing?

Christine Janaway

Basically, construction itself is not an environmentally friendly thing to do, so a lot of this has got to be converting existing properties. Not long ago, I was heavily involved with the empty homes agency because I was head of property at the national chain of estate agents, and we had a lot of leases on you know, 2,3,4 story buildings in town centres. These were ripe for conversion to apartments, and the beauty of people living in the town centres is they don’t have as much of an environmental impact because they can walk or cycle everywhere, they’re travelling less.

Anyway, putting that aside, the main problem, and we went into this in a great amount of detail, but the main problem preventing the conversion of upper floors to apartments is first of all the freeholders, they don’t like their investment being diluted in that way. The initiative at the time that we were trying to get off the ground was to let upper floors to housing associations who could access grant funding for the conversions and then they would effectively manage those tenants and it would be a win-win for everybody because it took some responsibility away from us as the leaseholders etc. But it was an impossible uphill task. Converting these properties was too costly and the owners just wouldn’t see the return on the investment.

I also know a lot of freeholders who own these properties have mortgages on them, and lenders are generally unwilling to allow that conversion as well.

There needs to be a big rethink about how to structure out legal interests in property. If it’s not just a straight residential house or a straight block of flats. I think there needs to be a massive rethink about how we effectively use the properties that already exist before we start just building over every bit of green space in the country.

Will Mallard

You’ve made a very good point, Christine. The environmental impact of building a new house is enormous. But if there are no incentives to develop and convert existing buildings and in fact massive barriers to them, what are people supposed to do?

What questions are at the front of a landlord’s mind when choosing the next investment?

Adam Ludlow

So, what I would say is the energy rating on it wouldn’t be near the top. Yeah. If I’m looking at you know, potentially investing in something new. I’m looking at, what’s the return on investment? What’s the time? What are the challenges? What are the problems? Right at the bottom would be, what is the energy rating of this particular property?

If it doesn’t get the numbers I’m looking for, there’s no point worrying about the EPC. So, at the moment for me, it’s very low on the radar. As you start to get into it, you know, then you might start exploring energy use and the potential investment requirements in that area.

Will Mallard

And Logan, how can software like Landlord Studio help?

Logan Ransley

There are three main things that we can help within this circumstance. One is just the automation and being more organised. You can keep all your documents, like EPCs and safety certificates in one place properly organised.

The second is by providing a better solution for your income and expense tracking and reporting you can get better insights into your financial data which will be invaluable for planning for these big expenditures that are coming up.

Finally, we also have a feature for reminders. You can set these and the app will remind you when things are due to make sure that you’re on top of all the important tasks.

Will Mallard

Thanks again, guys. Just closing comments as we round off.

Christine Janaway

If you’re a small portfolio landlord, then you really need to start exploring this. Don’t close your eyes and pretend it’s not really going to happen to you. Plan, plan, plan, that would be my advice.

Adam Ludlow

I’ll certainly be checking my EPC certificates when I have my next listing days for when they expire and start making plans. I would suggest for people to check what improvements can be made. Just putting new light bulbs might cost £50 but you can get another two points or something. So, have a look at what’s been suggested on the current EPCs and see if there are any easy wins.

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