Energy Performance Certificates
EPC ratings for buy to let mortgages. Tips for landlords, updated Sept 2023

EPC Ratings Introduction
According to the Office of National Statistics in 2020 there were 27.8 million households in the UK. In its English Housing Survey Report 2020-21 the Department of Levelling Up, Housing and Communities stated that while owner occupation represents 65% of households, the private rented sector (PRS) is the next largest segment and accounts for 19% of households in England, larger than the social rented sector at 17%.

The English Private Landlord Survey 2021 summarised some of the policy changes that have affected Britain’s circa 2.66 million landlords. These include tax changes for buy-to-let (BTL) landlords, changes to stamp duty land tax (SDLT), tightening lending criteria of BTL mortgage providers and planned reforms to the PRS.

A key element of these reforms has been a drive for improved energy efficiency in UK housing stock, much of which is ageing, and it’s estimated that only 40% of homes in England meet required energy standards.

Landlords are currently required to obtain an Energy Performance Certificate (EPC) before they can rent out a property, and the EPC must be made available to potential tenants. The EPC must also be provided to the local authority upon request. Landlords who fail to obtain an EPC for their rental properties may be subject to fines. In September 2023 the Government announced that it will scrap policies to force landlords to upgrade the energy efficiency of their properties, while continuing to encourage households to do so “where they can”.

Energy Performance Certificates (EPC)
The EPC was introduced in 2007, rating a property’s energy efficiency and is a requirement for all rental properties in England and Wales. It classifies the energy efficiency of the property on a scale from A to G with the A rating being the most energy efficient.

From 1 April 2018 rules came into force, making it unlawful to let properties, both domestic and commercial, on a new lease with an EPC rating lower than E. The government made changes to the Minimum Energy Efficiency Standards (MEES) for England and Wales in late 2021 stating that as of 2025, it is their intention that all rental properties will need an EPC rating of ‘C’ or above, with similar changes coming into effect in 2028 to include all tenancies. As of September 2023 the ‘C’ rating EPC target is to be scrapped.

According to research by Rightmove in 2021, landlords wishing to upgrade their homes can complete relatively inexpensive improvements to their properties including insulating a hot water cylinder (£23), low energy lighting in all areas (£38), draughtproofing single-glazed windows (£100) and increasing loft insulation (£223). However, their research also suggests that 1.7 million properties of between EPC band D and G cannot be improved to the statutory C rating.

Since 1 April 2020, landlords can no longer let or continue to let properties if they have an EPC rating below E, unless they have a valid exemption in place. Exemptions are listed on the government website.

It’s likely that your property is not exempt, so you could be looking at spending thousands of pounds to obtain a higher rating. The government has introduced a cap of £3,500 (including VAT) on energy efficiency improvements. If you can improve your property to E rating for less than the cap, you will have met your obligation.

If it would cost more than £3,500 (including VAT) to improve your property to E rating, the government recommend you should install all recommended measures that can be installed within that amount, then register an ‘all improvements made’ exemption. You can find out more detailed information here.

How is the EPC calculated?
An accredited energy assessor, using government-approved software, conducts a visual inspection of the property, taking a measured survey and photographs. The assessor investigates the potential for heat or energy loss, checking for insulation throughout the property as well as the efficiency of heating, water and ventilation systems.

The property is scored according to a standard assessment procedure (SAP) points system, in 7 bands, from 1 to 100. These correlate to the EPC rating from “A” to “G”, where “A” is the most energy efficient in terms of likely fuel costs and CO2 emissions.

An EPC report is issued alongside the rating which provides energy-saving suggestions on ways to improve the property’s rating. The EPC is valid for 10 years and needs to be renewed once expired to enable the property to be marketed or rented.

EPCs are monitored and enforced by the Local Authority Building Control department. Failure to acquire a valid EPC when you sell, build or rent out a property can result in financial penalties. A Local Authority may serve a financial penalty up to 18 months after the breach and/or record the breach in the Private Rented Sector (PRS) Exemptions Register. Fines range from £1,000 to £4,000 per property and breach with a cap of £5,000 per property. The Government plans to raise the penalty for not having a valid EPC certificate from £5,000 to £30,000 by 2025.

Six ways to improve your EPC rating
There are several steps that a landlord can take to improve the energy performance of their rental property and, in turn, improve its EPC rating. Some of the key ways to improve a property’s EPC rating include:

1. Engage with an accredited EPC assessor to conduct an internal and external inspection of your property and determine its current EPC value. You can find an accredited assessor in your area at these links:
https://golocalepc.co.uk/
https://hoa.org.uk/services/epc/

Even if you already have an in-date EPC it’s still worth investing in a new one, particularly if you’ve made upgrades to your property since it was issued. Once you have your EPC, a chartered building surveyor can advise you of the works needed to bring your home up to spec and how much these will cost. This will equip you to decide on the best course of action, whether to future-proof your portfolio or consider selling.

2. Upgrading the property’s insulation: Insulating the walls, floor, and loft can help to retain heat within the property, reducing the need for heating and improving the property’s energy efficiency.

3. Improving the heating system: Installing a more efficient boiler, upgrading to a low-carbon heating system, or using thermostatic controls can help to reduce the property’s energy consumption and improve its EPC rating.

4. Upgrading windows and doors: Installing double or triple glazed windows and doors can help to reduce heat loss and improve the property’s energy efficiency.

5. Using energy efficient appliances and fixtures: Replacing old appliances and fixtures with new, energy efficient models can help to reduce the property’s energy consumption and improve its EPC rating. Choose an energy supplier that gives you a smart meter to enable energy usage to be monitored.

6. Implementing renewable energy solutions: Installing renewable energy sources, such as solar panels or a wind turbine, can help to reduce the property’s reliance on fossil fuels and improve its overall energy efficiency.

Property Finance
Refurbishing properties to add value to your BTL portfolio or to bring them up to the new EPC C minimum will require investment and may need to be completed only when the property is vacant. Research conducted by Shawbrook Bank revealed that energy improvement works undertaken by landlords averaged £8,900, which amounted to £3,000 more than anticipated.

The Economy 2030 Inquiry report in 2022, Hitting the Brick Wall, suggests that 87% of landlords will face the full cost of EPC upgrades for items like wall insulation, a major issue as 40% of rented properties have poor walls.

Even though some or all costs for the simpler EPC upgrades may be recouped by landlords through increased rents, the costs will need to be financed initially. A variety of finance options are available for landlords for refurbishment schemes including energy enhancement upgrades to their BTL property or investment portfolio.

Bridging Loan
A bridging loan can be used to finance minor upgrades to a property that do not require planning permission, such as the installation of new windows or doors or the installation of a new central heating system. This type of light refurbishment should be capable of being completed within 12 months. The landlord would repay the bridging loan via a BTL mortgage based on the enhanced property value. Most lenders now offer modest rate discounts for EPC ratings of C and above.

BTL Mortgage
A new BTL mortgage may be the optimum option for a landlord coming to the end of the current mortgage term. A remortgage can enable a landlord to access the equity that has built up in their property and spread the costs out over a longer period. Its suitability will depend on several factors including the term of the mortgage and the affordability of the repayments.

Second Charge Mortgage
A common reason for taking out a second charge mortgage is to raise funds to refurbish an existing property to increase rental yields or the property value. These funds can be used to make energy efficient upgrades to their properties, including loft and cavity wall insulation, new double or triple glazing and installing condensing boilers. A BTL second charge mortgage offers a landlord flexibility with interest-only options and large loan sizes, with some lenders offering up to £500,000.

Why use Blueray Capital?
There are numerous aspects to successfully obtaining bridging finance, a BTL mortgage or a second charge mortgage. Using a specialist advisory firm, such as Blueray Capital, to navigate the requirements of lenders will help you achieve this success:

• We have relationships with all the property finance providers, including bridging finance, development finance and BTL mortgages. We know their lending criteria and application process requirements and provide prompt response on appetite and indicative terms.
• We make the process easier for the lender. Applications introduced by advisers have greater chance of success than a direct approach. We will have done due diligence on the client, established the transaction is robust, prepared relevant information and will present it in a lender-friendly format.
• For good quality deals it’s likely that multiple lenders will express interest which provides the client with more choice and potentially enhanced terms. A key adviser role is to establish lender appetite quickly and help achieve optimum terms.
• Our fees are paid by the lender as part of their arrangement fee and so our service does not represent an additional cost to the borrower.

The property finance process usually starts with a conversation with Blueray Capital. We can efficiently assess the options available and provide indicative terms promptly. We will then work with you to submit the application to selected lenders and guide you through the process to a successful and prompt completion.