Energy efficiency is becoming an increasingly important consideration for residential landlords.
The government’s direction is for privately rented homes in England and Wales to meet higher energy-performance standards by 2030, with EPC C or an equivalent standard at the centre of the proposed framework.
Government guidance states that it is exploring the detailed policy design following consultation and will provide further information in due course. Other government communications have said privately rented homes will be expected to meet the new standard by 2030 unless an exemption applies.
Although some of the detailed rules and assessment methods are still developing, landlords with properties currently rated D, E, F or G should begin reviewing their portfolios now.
Waiting until the final deadline could mean competing for contractors, materials and finance at the same time as a large number of other landlords.
Start With a Portfolio-Wide Review
Landlords should begin by identifying the current EPC rating and expiry date for every property they own.
However, an EPC rating alone may not provide a complete picture. The government is reforming the way domestic energy performance is assessed, with revised metrics expected to form part of the future EPC regime.
A sensible first step is therefore to record:
- The current EPC rating and expiry date.
- The recommendations shown on the certificate.
- The estimated cost of each improvement.
- Whether the property is listed or subject to planning restrictions.
- The age and condition of the heating system.
- The condition of the roof, windows and insulation.
- Any upcoming tenancy renewal or refinancing date.
- Whether other refurbishment work is already required.
This can help landlords prioritise properties where improvements are most urgent or where works can be combined with a wider refurbishment.
What Work Might Be Required?
The work required to improve a property will depend on its age, construction and existing energy performance.
Possible improvements may include:
- Loft, roof or cavity-wall insulation.
- Internal or external wall insulation.
- Double or secondary glazing.
- Draught proofing.
- More efficient heating and hot-water systems.
- Improved heating controls.
- Low-energy lighting.
- Renewable-energy systems where appropriate.
Landlords should take professional advice before carrying out expensive work, particularly on older, listed or unusually constructed properties.
The highest-cost recommendation is not always the most effective first step. A combination of smaller improvements may produce a better result and create less disruption for the tenant.
Should Landlords Complete the Work Immediately?
Not every landlord will need to begin construction immediately, particularly while elements of the future assessment framework are still being finalised.
However, delaying all preparation until 2029 would carry its own risks.
Landlords could use the period before the deadline to:
- Obtain updated EPC and retrofit advice.
- Build anticipated costs into portfolio cash-flow forecasts.
- Complete improvements when a property becomes vacant.
- Combine energy works with kitchens, bathrooms or general refurbishment.
- Review whether underperforming properties should be retained or sold.
- Explore funding before borrowing is urgently required.
A planned programme of improvements is likely to be easier to manage than attempting to upgrade an entire portfolio at once.
How Can Energy-Efficiency Work Be Funded?
The most appropriate finance will depend on the cost of the work, the number of properties involved and whether the properties can remain occupied.
Existing cash reserves
For smaller works, using retained rental profits may be the simplest and cheapest option.
However, landlords should avoid using all available liquidity if it leaves no contingency for repairs, void periods or interest-rate increases.
Further advance or investment mortgage
Where the property already has sufficient equity and the works are relatively straightforward, the existing mortgage lender may offer additional borrowing.
This will normally be subject to affordability, rental coverage and the lender’s maximum loan-to-value.
Refurbishment bridging finance
A refurbishment bridge may be appropriate where substantial work is required, the property cannot currently be let or the existing condition prevents it from qualifying for a standard buy-to-let mortgage.
The usual exit would be to refinance onto a longer-term investment mortgage once the work has been completed and the property is lettable.
Second-charge funding
Where the landlord has an attractive first-charge mortgage that they do not want to redeem, a second-charge facility may allow them to release equity while retaining the original loan.
The combined leverage and cost of both facilities must be carefully considered.
Revolving credit facility
Landlords with several properties may be able to establish a revolving credit facility secured against one or more assets.
This can provide access to capital that can be drawn, repaid and reused for works across the portfolio.
For active investors, this may be more efficient than arranging a new bridging loan and paying new arrangement, valuation and legal fees for each property.
Portfolio refinance
Where several properties require improvements, refinancing the portfolio may release enough equity to fund a structured programme of works.
This can also provide an opportunity to consolidate existing borrowing, although early-repayment charges and the cost of replacing older mortgages must be taken into account.
Could Improvements Increase Value and Rent?
Energy improvements should not automatically be assumed to increase the property’s value by more than their cost.
However, a warmer and more efficient home may be more attractive to tenants, reduce maintenance issues and help protect the property’s future mortgageability.
The strongest result may be achieved where energy works form part of a wider refurbishment that improves the overall condition, layout and rental appeal of the property.
Before borrowing, landlords should assess:
- The total cost of the proposed work.
- The expected EPC improvement.
- The likely increase in rent, if any.
- The value after completion.
- The cost and availability of the refinance exit.
- How long the property will be unavailable to tenants.
- Whether planning or freeholder consent is required.
Begin Planning Before the Deadline
The final details of the future private-rented-sector energy standard are still developing, so landlords should continue to monitor government announcements and obtain current professional advice before committing to major expenditure.
However, the overall direction is clear: energy efficiency is likely to play a greater role in how rental properties are regulated, valued, financed and managed.
Landlords who understand the condition of their portfolio and plan improvements in advance will be in a stronger position than those who wait until the deadline is approaching.
At Cator Wells, we arrange refurbishment, bridging, investment, second-charge and revolving credit facilities for landlords throughout the UK.
If you are reviewing the cost of improving one property or planning a programme of works across an entire portfolio, speak to us to explore the funding structures available.