Sim Sekhon: The shifting costs of meeting energy performance standards
Since April, landlords have been required to ensure properties they let reach a minimum of Band E for energy performance. Those whose properties fail to make the grade can’t agree a new tenancy unless the cost of improving the EPC exceeds £2,500. That cap has just been increased to £3,500.
The numbers of properties affected could be substantial. Estimates put the numbers of rental properties falling in Bands F and G to be around 280,000. Fuel poverty campaigners have quoted figures which suggest tenants living in these properties face annual fuel bills that can be £1,000 more than those for average households. These campaigners have long been arguing that the cap should be £5,000. At this level, far more landlords would be forced to upgrade their insulation and heating systems, leaving just a few thousand homes where the cost would be excessive.
Although it’s very easy to quote figures in general terms, every property and every landlord’s situation is slightly different. The Government is fond of saying that for most landlords upgrades should average about £1,200, giving tenants a fuel cost saving of around £180 annually, but we’ve yet to see figures that show how the landlord with a single buy to let, a void period, an increased tax burden, a defaulting tenant and legal expenses is to find the funds to make the improvements. Nobody should be forced to live in a cold, damp home, and there are certainly cases where landlords should be ashamed of themselves, but is it too much to ask that we have a bit of consistency in Government policy and plenty of notice of changes?
There will be landlords whose business model isn’t resilient enough to handle such a sudden move. Some might argue that they shouldn’t be in the business of property rental but imagine a scenario of a property that needs loft insulation, a new boiler and upgraded glazing at a cost of £3,000. Previously that £3,000 would be in the landlord’s pocket. Now he’s forced to spend it, irrespective of the wishes of the tenant and irrespective of the level of rent. £3,000 on a single property as a one-off hit?
Despite what the Government might think, for many landlords, margins are slim. Property rental is a business – it’s not the charitable provision of housing by kindly benefactors with limitless wealth. Tenants may save money on their heating bills after improvements are made, but when a tenancy comes around for renewal, their rent may have to increase.
About 200,000 landlords have properties that could be affected. I’d advise every one of them to start looking now for any funding available to support the EPC upgrades their property needs. It’s likely that the cap will increase again, probably to the level of £5,000, and as properties that need more work start to get updated, the grant funding available may well be eaten up.