EPC Changes could be Harmful for Investors?

The UK government is on a mission to reduce carbon emissions and create a greener housing market. Currently, there are no legal requirements for homeowners to achieve a minimum EPC rating, although landlords must have a minimum EPC of E to rent a property.

However, new energy regulations are currently being discussed that would require all homeowners to achieve an energy rating of C or above. These proposals are causing concerns among homeowners living in older housing, as these properties could lose significant value if additional energy efficiency regulations come into force.

Here is everything you need to know about the minimum energy efficiency standards and the impact they could have on homeowners and investors.

What are the new energy efficiency rules?

As part of the Clean Growth Strategy, the UK government has set an ambitious target for all homes in England and Wales to achieve C-rated Energy Performance Certificates by 2035. If the new rules are introduced, then it will become a legal requirement for all homeowners to have an energy rating of C or above.

An even earlier target has already been set for private rented housing. The minimum energy efficiency standards mean that rental properties with an energy rating of D and below can not enter new tenancies from 2025, whilst those with existing tenancies would have to comply with the new energy efficiency rules by 2028.

Why are these being introduced?

According to the Committee on Climate Change, “40% of UK carbon emissions come from households.” This means that making our homes more energy efficient will play a crucial role in meeting the UK’s climate change commitments and achieving net-zero by 2050.

The new energy efficiency rules are being introduced to reduce the emissions associated with the UK housing market and make homes cleaner and greener. Along with the environmental benefits, making housing more energy efficient will also help tackle fuel poverty by lowering energy costs for households in the poorest areas.

What is an EPC rating?

An Energy Performance Certificate (EPC) assesses the energy efficiency of a property. The assessment is completed by a qualified energy assessor and the property is given a rating of A-G based on the data collected. The most energy-efficient homes will be in band A, while the least energy-efficient properties will be given a G rating.

An EPC also provides homeowners with recommendations on how to improve energy performance and reduce energy costs. Common energy efficiency upgrades include adding an extra layer of insulation in the attic, installing old windows and doors, and replacing high-energy appliances with more efficient models.

Could these rules be harmful for investors?

A recent survey revealed that three in five homes in the UK have an energy rating of D or below and the majority of houses built before 1900 have an E rating. This is mainly due to poor insulation, inefficient heating systems and a lack of double glazing.

The government estimates that upgrading older homes to meet the minimum energy efficiency standards could cost up to £20,000 per property. This is an expense that many homeowners simply cannot afford, even with the support of government grants and financial schemes. 

Homeowners are coming under increasing pressure to upgrade inefficient properties and the UK government is currently discussing how mortgage providers can help improve the energy rating of their homes.

One suggestion is to introduce a target-based approach for improving the energy performance of lenders’ portfolios by requiring a portfolio average target of EPC C by 2030. However, enforcing this rule could cause mortgage providers to become more reluctant to lend on properties with lower EPC ratings as it would bring down their average.

If older, less efficient properties become more difficult to purchase, then their value will plummet as they will become less attractive or attainable to homeowners.

Bottom line

Climate change is becoming a serious issue and governments around the world have committed to ambitious carbon reduction targets. The UK government has pledged to upgrade the most polluting properties in a bid to achieve its net-zero targets by 2050 or sooner.

Energy efficiency renovations are often expensive and new minimum energy standards could have a harmful impact on home buyers and property investors. On the plus side, the government has introduced several schemes to help homeowners and landlords afford energy-saving upgrades. You can find out more about the schemes and grants available by visiting Ofgem.