Should landlords sell up or splash the cash to meet Labour’s new eco rules?

Nick Bedson has a rental property in West Sussex with longstanding tenants that he does not want to evict. But he believes he has no choice because it will never meet the new minimum energy efficiency standards.
The listed cottage will never achieve higher than an EPC (energy performance certificate) rating of D, one band below C — the minimum all properties must meet to be legally rented out by a private landlord by 2030, under plans announced by the energy security and net zero secretary, Ed Miliband. Heritage protections do not allow Bedson to replace the cottage’s single-glazed windows with double glazing or install insulation in the flint brickwork walls.
Bedson, 36, has a portfolio of ten properties in the southeast of England, but he plans to sell two because they won’t meet new energy standards, and “the jury’s still out on another two”.
He says: “We’ve had families in them both for a long time and it’ll be a shame to see them go. I’m lucky enough that it’s not my sole source of income, but there’s a lot of landlords out there that will look at [the new rules] and sell off as a result. The historic data suggests that rents will just continue to increase as a result.”
The return of the EPC deadline, scrapped by the Conservative government in September 2023, was an inevitability. It was outlined in Labour’s manifesto under its Warm Homes Plan to make energy bills more affordable for tenants while meeting its net zero obligations.
While the full details of Miliband’s plan are yet to be announced, the 2030 deadline is two years later than the Conservatives’ proposal — a small concession to the landlord lobby, which has been warning for years that the proposals aren’t realistic.
Of the privately rented properties that have had an EPC issued so far this year, 55 per cent achieved a C rating or higher, compared with 48 per cent of owner-occupied homes, but the pace of change is far too slow to meet a 2030 deadline.
At the rate of improvement it would take until 2042 for all private rentals in England and Wales to reach a rating of EPC C, which means the rate of energy upgrades made each year will have to increase threefold to meet Labour’s deadline, according to analysis from the estate agency Hamptons.
Persuading private landlords — already under pressure because of higher licensing prices, repair costs and mortgage rates — to invest rather than sell is going to be a big challenge.
The median cost of improving a property to band C is £8,000, according to the English Housing Survey, increasing to £13,509 when upgrading an E or G-rated property to C. This calculation doesn’t take into account void periods if tenants have to move out for works to be done.
This could lead to landlords selling up outside London and the southeast, where the cost of upgrades is likely to be a higher proportion of the property’s value. This could wipe out capital appreciation when landlords come to sell, but it’s also more difficult to recoup the expenditure through higher rents in lower-income areas.
Previously landlords could apply for an exemption if the upgrades cost more than £3,500, but reports have suggested this could be increased to £10,000, which Chris Norris, the policy director at the National Residential Landlords Association (NRLA), thinks is “probably reasonable”, although he adds this cap should be regionally adjusted.
A one-bedroom flat with an EPC rating of C in Teddington, southwest London, is for sale at £475,000 via knightfrank.com
“In the past couple of years the number one reason landlords have told us they were disposing of one property over another is that it was going to be the most difficult one to get up to a C [rating],” he says.
“It has not been a mass exit from the market, but it has been a restructure. Lots of low-value assets outside the southeast are being swept out of the sector because [landlords] have looked at the costs and decided they’re not going to stack up.
“If you look at the stats for how [energy efficiency] has improved over the past 20 years, you can see there’s been a willingness to tackle low-hanging fruit.”
When Suzanne Smith bought a Victorian mid-terraced house in Maidstone, Kent, five years ago as a buy-to-let investment, she wasn’t too concerned that it had an EPC rating of E. But it eventually became clear that the EPC deadline was not going away, so she started working her way through the energy efficiency upgrades recommended in the previous owner’s EPC assessment.
To help other landlords, she described all the improvements and costs on her blog The Independent Landlord. In total the added insulation, new double-glazed windows, suspended floor and loft insulation and a new ceiling in the cellar cost her £13,650.
Smith, 56, is glad she made the changes because she believes they make the house more comfortable and cheaper to run for her tenants, meaning it will be more likely that they will stay for longer. It will also make the property more attractive to future tenants and boost its value.
Smith, who has four buy-to-let properties in Kent, says: “I’m in favour of improving energy efficiency. It’s the right thing to do and the tenants have been really happy.”
However, she does think the EPC system is inconsistent and not fit for purpose. She says her property was previously D-rated but the energy assessor who rated it E had assumed there wasn’t loft insulation.
In future she plans to only invest in properties rated at least C or negotiate a discount that will cover the cost of upgrades.
She says: “Personally [EPC rules] are a bigger worry than the end of Section 21 evictions. Most people have good tenants but tenant selection will just become more important. The cost of EPC upgrades is a certainty and if you’ve got to spend £10,000 in the next five years and you’re only making £200 a month from the property then it becomes an unworkable scenario.”
A simpler solution for some landlords is to sell older properties and buy new ones. Hamptons figures show 41 per cent of new buy-to-let purchases this year were rated A, B or C, up from 30 per cent in 2012.
“The rising figure reflects a degree of pressure from the on-off rental energy efficiency proposals by the Conservatives but also an uplift in EPC ratings more generally,” says David Fell, a senior analyst at Hamptons.
Trust is another obstacle. Landlords don’t know what to spend their money on because the goalposts keep moving. Norris adds: “We [at the NRLA] legitimately don’t know what we can tell our members to do that isn’t going to be contradicted in a few years’ time. And what’s really scary at the moment is everybody expects there to be a shift from the current EPC C, which is calculated on energy cost, towards a different measure, which looks at carbon footprint.”
The method for calculating EPCs is long overdue an upgrade and changes should be announced in the next few months. However, the evidence suggests this may be in landlords’ favour, especially if the government wants to meet its eco-targets.
Changes made in mid-2022 reduced the assumed environmental impact of electrical appliances, pushing homes heated by electricity rather than gas into higher bands. Prior to this change, it was estimated that 7 to 8 per cent of rental homes would be unable to achieve an A to C rating, but data from EPCs this year suggests that figure is now between 3 to 4 per cent.
In its manifesto Labour said, “Nobody will be forced to rip out a boiler as part of our plans,” but the Boiler Upgrade Scheme, which is available to all property owners, will continue to be available to part-fund the cost of replacing fossil fuel heating systems until April 2028.
However, there is no talk yet of access to loans or grants for private landlords who cannot afford upgrades. Faye Handfield, from Claregrange Lettings in Nottingham, thinks that the Treasury needs to talk to mortgage lenders and energy companies to work out how they could offer grants or use lower rates and tariffs to incentivise landlords who carry out energy upgrades.
She says: “When you’re reading that Shell or BP or whoever are making billions in quarterly profits, where is that going? Is that only going to the shareholders? I’m sorry, it can’t be justified. It just feels disappointing that it’s all down to the landlord.”
As well as upgrading Britain’s housing stock, the 2030 deadline is also meant to reduce fuel poverty. Analysis from Hamptons shows that higher utility prices mean the average tenant will save £499 a year if their home is upgraded from an EPC D to a C, a 76 per cent increase in savings since 2019.
But if landlords have no other financial recourse, it’s likely that they will increase the rent to cover the upgrades, which would simply shift tenants’ costs from energy bills to rent instead.
In the meantime the best thing landlords can do is find an energy assessor that will give them a clear plan and costs. Elmhurst Energy, which trains energy assessors throughout the UK, doesn’t just offer energy performance assessments but also retrofit assessors and specialists for older and traditional buildings.
Stuart Fairlie, the managing director at Elmhurst, believes a new-look, practical EPC could make all the difference. He says: “There are some buildings that admittedly will be more costly to do. So give each house a plan, tell them where they can go to get grants and information and how to do it well. If you can bring all that together then the good people will have a nice journey. Those that leave it right to the end are in a dead mess. And if they get told off, they can’t say that they weren’t told.”