Energy Improvement Costs Could Be Passed onto Tenants

More than 50% of landlords looking to improve the energy efficiency of their properties will look to redeem costs from rent, according to a recent survey.

Shawbrook Bank has made this warning after carrying out a poll of 1,000 respondents, with research showing that tenants in London are most likely to see landlords passing costs on to them.

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Landlords must make improvements to their properties ahead of a proposed deadline of 2025, which has been set by the Government for the improvement of energy ratings from D to C. 

More than a third of rental properties were built before 1940 meaning they are unlikely to meet standards, according to the research.

How many landlords will be hit by energy efficiency changes?

All landlords will need to keep an eye out for updates from the government and make necessary changes to their property.

Results of the research found that: 

  • Around 23% of landlords admitted their properties were rated D or below. This means they would need to actively make energy improvements before beginning new tenancies
  • It would cost an average of £5,900 to improve the energy efficiency of homes to the required level by this time, according to investor estimates. But landlords who have already made improvements spend an average £8,900
  • Nearly a third of respondents said they would have ‘just enough’ money to make improvements that would boost them up the rating system. 14% of landlords said they did not have the money to make the improvements
  • Rents will be pushed up because of these new regulations, according to a fifth of landlords, despite rental debts already being at an all time high 
  • 68% of London landlords said they were ‘likely to pass costs on to tenants’ – the highest proportion for any region
  • East of England landlords were least likely to pass costs on. Only 38% of landlords in this region said they’d pass improvement costs to tenants
  • 15% of landlords would now look to only purchase properties built within the last 15 years. If a landlord is looking to expand their portfolio, newer properties are likely to already have a higher energy rating, meaning they won’t have to invest in improvements.
  • Around 28% of landlords said their tenants had complained about their property’s EPC rating at least once. Around 16% said they had received multiple complaints and 61% of landlords said they would consider making appropriate updates if tenants requested it.

Emma Cox, sales director at Shawbrook Bank, said that landlords will need to strike a balance when it comes to making the necessary improvements: 

While work needs to be carried out quickly to prevent any void periods during a tenancy, having a clear plan in place as to how they will fund any necessary works is crucial. Our research has shown that landlords may be underestimating the costs involved, leaving them open to unexpected bills.

As a result, tenants could be caught in the crossfire as landlords seek to recoup some of the costs. While tenants can expect to benefit from cheaper energy bills as a result of greater energy efficiency, any savings on bills could be outweighed by a market wide rent rise in 2025.

Emma Cox recommended that landlords start doing their research now, including speaking to a mortgage advisor to help understand how they can release funds and when to begin work to meet proposed deadlines.

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