Landlord Legislation Changes: What Will They Cost You?
There’s new energy efficiency legislation in the pipeline. What’s the cost to landlords?
We’re sure you may have noticed that it’s not smooth sailing out there for landlords at present. New energy efficiency rules are on the horizon, expected to cost landlords £16 billion over the next few years. Then there’s the impact of the energy price increases, which brings a higher chance of rent arrears, plus the mortgage market madness, causing many repayments to climb sharply and the withdrawal of hundreds of products in the face of rate rise concerns.
We’ve been talking to industry experts about how landlords can navigate these choppy waters and, with any luck, plan towards a somewhat calmer, more certain future.
The high cost of energy efficiency upgrades
The government is set to change the rules around energy efficiency for rental properties in 2025. The plan is for all such properties to have an EPC rating of C or above by then. For some homes, the upgrades are potentially pretty pricey and experts say they could total as much as £16 billion collectively.
But there is good reason for the change, says James Tanner, an energy and efficiency expert and full-time landlord.
The whole world has come together and agreed to aim for net zero by 2050. In order to meet that, the housing stock must become much more energy-efficient. That’s why the government proposed an EPC of C.
But do residential buildings really make that much of a difference? Yes, says James, as “25% of all the energy used in the UK is from buildings, mainly from heating hot water, so there’s a direct link between how homes are heated and the amount of fossil fuels burned.”
That’s a pretty compelling figure. So what can landlords do to improve energy efficiency?
Quick wins to boost your EPC rating
The good news is that many properties are already close to being compliant, says James.
The average property in Britain has an EPC of D, so to go to an EPC of C is not actually a huge leap, and there are lots of things that landlords can do that aren’t going to cost an arm and a leg.
James recommends:
- Putting in good controls for the hot water and heating systems
- Implementing different zones heating different parts of the property
- Blocking up the chimney
- Insulating the loft.
All of these will add points to your EPC.
Some of James’s tips are powerfully simple, but it’s easy to overlook such things, and thousands of us probably do. He points out that many London houses have a gap of half a centimetre under the front door and lose a lot of heating that way. A simple fix can save you there!
Naturally, the potential savings these measures can bring will depend on property type, size and lots of other factors, but these measures alone may push a property from a D to a C, and none of them will cost an arm and a leg.
But what if you’re looking to make a bigger impact on your energy efficiency?
How to make a massive impact on your EPC rating?
If you’re spending big, spend right, James emphasises:
The biggest-impact things that a landlord can do to improve their energy efficiency and improve their EPC is to install insulation under the floors, in the exterior walls, in the loft and the eaves, to install triple-glazed windows and draft-proofing, and to block up the chimneys. For example, 50 cm of natural, breathable loft insulation will reduce heating bills by 25%.
And it’s well worth installing a very energy-efficient boiler and A+++ appliances as it makes a massive difference to lowering energy bills and increasing your EPC rating. And there’s another way to get those bills significantly lower: “You can fit solar PV [photovoltaic] panels with a battery, so it can store the electricity generated in the day and use it at night, and it can also give you hot water. That will also massively increase your EPC and reduce your energy bills.”
What if you can’t afford it?
James wants to assure landlords that they aren’t on their own and gives a couple of examples of the ways the government are easing the transition for landlords: “The Scottish government are giving interest-free loans and grants of up to £17,500 to landlords to make energy efficiency improvements. In the UK you can apply for capital allowances of up to 130% to install solar PV panels, and the government have zero-VAT-rated most energy-efficient products.”
James is keen to point out that the C rating rule isn’t rubber-stamped yet, but he urges landlords to crack on now to spread the cost. “I would recommend all landlords get to C as soon as they can, to help tenants who will then have lower energy bills, to improve the property’s energy rating, and to help save the planet. It’s a win-win-win.”
Will energy bill hikes lead to rent arrears?
Hefty energy price increases mean thousands of people are having to choose between which living expenses they pay and which go unpaid. Tenants are no exception, with many facing the prospect of choosing between paying rent and bills. And, of course, that’s bad news for the landlord too.
Mashroom asked tenants about their situation amid the cost-of-living crisis, and parts of the picture are rather gloomy:
- 13% of tenants said they’ve experienced a rent increase and are struggling to afford it
- 36% said while they can afford to pay bills now, they’re concerned about affordability in the future
- 40% said they are unlikely to be able to afford any further increases in energy bills
- 17.8% say they’re already beginning to struggle to afford the bills
- 11% said paying energy bills was more important than paying their rent
How can landlords help their tenants help themselves?
When it comes to energy-saving, James recommends landlords take a proactive approach: “What we’ve done in our properties is all the low-cost and no-cost measures, which includes removing all the sludge that builds up in the radiators, and enabling Eco Mode on boilers. We’ve also sent our tenants a list of things they can do themselves to reduce their energy usage.”
The things on the list may seem minor – like putting lids on pans while cooking, using cold water to wash hands, and setting a five-minute shower timer – but they all add up to lower bills.
And there is more that landlords can be doing to help cut bills, says James, including changing the temperature that flows around the radiators in the property – it’s called the flow and return. James recommends a low-flow showerhead, which reduces the water coming through the shower, meaning less gas is needed to heat that water in the first place.
Finally, James advocates for making full use of recent technological advances like an electricity monitor, which allows tenants to see in real-time exactly how much energy they’re using, which can really encourage a change in behaviour and get people to reduce their electricity consumption.
Is Rent Guarantee Insurance worth it?
Throughout the most critical period of the Covid-19 pandemic, Rent Guarantee Insurance was pulled from the shelves, and many landlords found themselves regretting not having it. So is it worth investing as the cost-of-living crisis bites? Given that the industry could be on the precipice of another rent arrears crisis, we asked James to weigh in on the value of this product:
I find it invaluable. I’ve been using it for years in lots of my properties because it does two things: first, it pays out on rent that’s not paid by the tenants, and secondly – more importantly – it will cover your legal fees, which could be far more than the rent that they’re not paying you. So yes, it’s a very good product, it’s a tax-deductible expense, and it’s a no-brainer. I would highly recommend it.
Act soon to increase your EPC rating
So, James’s key message about energy efficiency is to act soon and implement all the no-cost and very-low-cost measures immediately. Start to talk to your tenants about the simple things they can do themselves.
Do I need to tell my insurer when I’m upgrading?
So, our energy efficiency expert encourages landlords to get stuck in and not to delay. But there’s one important to-do on the list before you get the contractors in. Mashroom mortgage expert Matthew Crawley explains how energy efficiency updates could impact insurance.
It depends on the scale of the changes, Matthew clarifies. “If you’re making changes such as swapping a lightbulb to an LED light bulb, then you wouldn’t need to notify them [your insurer], but if it’s something that’s more structural – say putting insulation into walls – then they would need to know, as it is going to increase the risk to the insurers.”
If you don’t let your insurers know about these changes, you could have invalidated your policy:
Say there’s a burst pipe or an ‘escape of water’ claim. There is a likelihood that the insurers wouldn’t pay out, so then you’d be out of pocket, also the tenants may have to move out in that situation, which could cost a lot more if insurance won’t cover it. So it’s definitely in the landlord’s best interests to let the insurer know. It’s better to be safe than sorry.
The latest mortgage turmoil
Financial market turmoil has caused steep interest rate rises and huge uncertainty in the mortgage industry, resulting in record numbers of mortgage products being taken off the market, and borrowers’ tracker and standard variable rate repayments increasing. And the Bank of England has indicated it will raise interest rates again if it thinks it necessary, leading to economists predicting the base rate could rise to 5.8% – that’s more than double the current rate.
How will the mortgage chaos affect fixed and tracker rates?
How much you’ll be affected by the mortgage upheaval depends on your individual situation, says Mashroom mortgage specialist Robert Winfield. And those who have recently switched to a new fixed-rate deal are in an enviable position:
We all know we’ve seen a market trend. Interest rates have increased over the last six months, so if you’ve locked in anywhere in that period, or previously, then you can sit pretty. There is no crystal ball, but you’re relatively safe.
But what about those on a tracker mortgage? Robert points out that there’s no one-size-fits all answer, as it depends on the customer and their current tracker. However, market trends suggest that it would be best to get something locked in sooner rather than later. The last 6 months have only seen an increase, and that’s set to continue while inflation is still skyrocketing.
For those coming to the end of their fixed-rate deal, Robert urged them to act sooner rather than later.
How will buy-to-let mortgages be affected?
Robert talks to landlords every day about their buy-to-let mortgages, so he has built up a picture of what they are choosing to do about the market turbulence and has found that, while a lot of landlords have been directly affected, most of those costs have been passed on to the tenants, as steep inflation means that it’s easier to justify such rises in rent.
What if you can’t afford the repayments?
Robert has some reassuring words for those worried about how they will afford their new repayments:
The banks are made up of humans. They’re human on the other end of the phone. So always speak to your lender. Don’t let something just default. They want you to be upfront. If you stick your head in the sand and miss a payment, that’s a much more detrimental, long-term effect on credit score and reliability with the lender.
Can I use my mortgage to finance energy efficiency upgrades on my property?
Given the EPC rule changes, some landlords will be considering financing those changes through remortgaging, and Robert has some thoughts on this: “If you have a lot of money in the property, you can borrow it from the lender to make ‘home improvements’. Back in the day you’d remortgage to do this, but if you’ve got a cracking rate, don’t move your whole mortgage to a new bank and go onto a rate two or three times that. You can go to your bank and ask for what we call ‘additional borrowing’, where only the extra loan would be on the higher rate. And a personal loan is another option. You don’t necessarily have to go through a mortgage.”
If there’s one key message that comes through in our experts’ advice today, it’s to act sooner rather than later to safeguard your property. And you don’t have to do it alone, because here at Mashroom we have a wealth of expertise on hand for you and we want landlords to build a solid, successful future, so get in touch for a chat any time.
Roll on calmer and brighter times (lit by LED bulbs, of course)!
