In December 2020, as part of its bid to make the UK’s residential property sector much more energy efficient and to help the UK meet its net zero by 2050 target, the Government announced new energy standards for rental tenancies for England and Wales, set to become law by 2025.
From 2025, all rental properties will need to have an EPC rating of C or above. This will apply to new tenancies first, followed by all tenancies from 2028.
But the impact of this will be felt differently from region to region across the UK. While the cost of making energy efficiency improvements is broadly similar nationwide, our analysis has revealed that homeowners and landlords further north will face a bigger hit relative to the value of their asset and the income it can generate.
We found that 2.3 million homes in the private rented sector will need to be renovated by 2025, and that this will disproportionately impact stock which is located in the Midlands and the North. Despite these regions only accounting for 47 per cent of rental stock, more than 180,000 rented homes will be unlettable in 2025 without improvements in Birmingham, Leeds, Bradford, Sheffield, and Manchester.
Funding these works will also be more challenging – especially for landlords who are operating in areas of lower sale and rental prices.
The Government estimates that landlords will need to spend on average £4,700 to upgrade each home. This means that a landlord spending this amount to improve their property in Bradford would pay 3 per cent of the average property value there, or almost nine months’ rent. Whereas a landlord spending the same £4,700 in Wandsworth, would only spend 0.8 per cent of the average property value or less than three months’ rent.
In the face of rising costs for materials, labour and mortgage rates, many landlords will see a negative impact on rental returns, with some deciding to leave the sector altogether. At the same time, prospective landlords are also unlikely to buy properties that need upgrading ahead of the deadline. This could lead to dwindling rental supply and further rises to rental costs, which will be felt most acutely across the regions the Government is looking to ‘level up’.
However, it’s not bad news for all landlords. While insulation and double and triple glazing are likely to have the biggest impact on a home’s EPC, cheaper solutions can also play a role. Upgrading or installing heating controls can be an effective way to control temperature and timings, and can be done without replacing the boiler. Meanwhile making use of low-energy lighting and increasing hot water cylinder insulation can also be part of the drive for greater efficiency.
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