What will happen to landlords with low EPC ratings?
What will happen to landlords with low EPC ratings?
Many landlords are concerned about upcoming changes to the minimum EPC rating permitted in privately rented homes (PRH), which looks likely to rise from E to C in 2025.
The costs of upgrading properties to meet the new EPC standards, alongside a lack of funding for properties with EPC ratings of F and G in the government’s recently announced ECO+ scheme, has some landlords worried.
There remain questions around properties – and landlords – that are unable to upgrade to the EPC level needed to meet the new targets, and what will happen to these properties if they can no longer be rented out.
What are EPC ratings and how are things set to change?
A property’s Energy Performance Certificate (EPC) is how its energy efficiency is assessed. Properties are given an EPC rating from A (most efficient) to G (least efficient), based on how energy efficient it is and therefore also how affordable the home is.
All rented properties must have a valid EPC by law and currently, properties should only be rented out if they operate a minimum EPC rating of E. However, there are plans for the minimum rating to be raised to C in 2025 as part of the UK government’s ambitions to reach net zero by 2050.
Landlords of properties in the lower EPC bands are worried about how realistic these targets are for their buildings, particularly as properties with F and G ratings are not eligible for the government’s ECO+ funding to assist with such changes.
This, plus the strict restrictions on which suppliers can be used to carry out work, has caused questions around the practicalities of the scheme.
What is the governments ECO+ Scheme?
The government’s Energy Company Obligation Plus (ECO+) scheme builds upon previous iterations of ECO since the scheme was launched in 2013 with a mission statement to provide ‘energy efficiency measures’ to households across the UK.
The scheme aims to reduce energy bills for low-income households and lower carbon emissions, making steps towards the UK’s energy independence in the process.
The government says the new scheme, which is predominantly focused on ‘low-cost insulation measures such as loft insulation and cavity wall insulation’, mainly for owner-occupied homes, will see ‘hundreds of thousands of households receive new insulation, saving them around £310 a year.’
The insulation funded by the scheme includes:
- Loft insulation
- Cavity wall insulation
- Solid wall insulation (external and internal)
- Pitched and flat room insulation
- Under floor insulation
- Solid floor insulation
- Park home insulation
ECO+ also offers certain households grants for secondary energy efficiency measures, such as temperature controls (thermostatic radiator valves, boiler programming, etc).
The Scheme, which is set to run from spring 2023-26, has a £1 billion pot of funds to assist households with the necessary upgrades in order to stay in step with the climbing EPC ratings.
However, the scheme has come under fire from landlords as, depending on a property’s current situation, some funds are not accessible to those who would need them to upgrade their EPC ratings.
Who is eligible for ECO+ funding
Landlords can only access funds from the ECO+ scheme if they haven’t received grants from previous ECO schemes, and support is not available for properties with the lowest EPC ratings of F or G, unless a valid EPC exemption is in place.
The government’s guidelines explain this, saying:
Given landlords in England and Wales are already required to improve homes to an EPC band E up to a spend cap of £3,500, PRS households in EPC bands F and G will be excluded, with limited exceptions.
Unless your tenants are on low-income benefits, loft and cavity wall insulation, which cost less than other kinds of insulation, will also not be funded, though you will still be eligible for funding for all other insulation.
However, private rental housing can only apply for grants for insulation installation, and not for the secondary updates relating to heating controls, with the government justifying this exemption by saying that, ‘landlords are expected to provide functioning heating systems for their tenants.’
What help is available for landlords with low EPC ratings?
The good news for those with F or G rated properties is that ECO+ funds are still available to you if your property is either not legally required to have an EPC, or registered as having a valid EPC exemption.
There are a number of situations in which you don’t legally need an EPC, including but not limited to:
- If your property is listed or protected and EPC updates would alter it significantly
- If it’s a detached building with less than 50m2 floor space
- If it’s a temporary building which will only be used for two years or less
If you are legally required to hold an EPC certificate, but are in the F or G category, exemptions to meeting the minimum EPC rating can be granted in the following circumstances:
- ‘All relevant improvements are made’ exemption: if you’ve spent over £3,500 (including VAT) on energy efficiency improvements, but your property still doesn’t meet EPC E standards, or if no improvements can be made
- ‘High cost’ exemption: if even the cheapest improvements would cost more than £3,500 (including VAT)
- Wall insulation exemption: if the only improvements for your property are cavity, external or internal (for external walls) wall insulation and you have evidence that these would ‘negatively impact the fabric or structure of the property or the building of which it is part’
- Third-party consent exemption: if you need consent for improvements from another party which cannot be obtained reasonably
- Property devaluation exemption: if making improvements to your property would devalue it by more than 5%
Exemptions are granted for up to five years and require strong supporting evidence to be successful. You can register an exemption here.
Whilst exceptions to the EPC and ECO+ rules will be helpful for some landlords, there is still much uncertainty around the future of low EPC rated properties that cannot access funds or are simply unable to improve their ratings.
The Landlords Guild points to the fact that ‘homes that run off fuels other than gas are likely to stay at EPC grade D or lower’, saying that according to Ofgem, ‘at least a million homes cannot connect to gas and rely on oil or liquid gas to run heating, cooking and hot water.’
Landlord groups are putting pressure on the government to increase help for buildings such as these and anyone else who will struggle with upgrades with the current level of support available, arguing that increasing energy efficiency in all properties is to the benefit of everyone in the long run, and urging them to take into account the complexity of the situation.
If you’re interested in learning more about upgrading your property’s EPC, you can check out our Mashroom Show episode on just that, with energy and efficiency expert James Tanner.