UK Edition
Buy-to-let investors face new targets on energy efficiency
Landlords will be forced to upgrade the energy efficiency of their rental properties under new Government regulations.
The new rules, published yesterday and to apply from next year, place additional requirements on landlords to make sure their properties are up to scratch in terms of fuel efficiency.
Any properties rated as an F or a G on the energy efficiency rankings, the lowest possible ratings, will need to be upgraded for new tenancies by April next year and for existing tenancies by 2020. The move has the potential to save tenants more than £2,000 on their energy bills.
The improvements are currently based on there being no cost to the landlord, with several Government loans and subsidies available. The Clean Growth Strategy, also published yesterday, stated the intention to upgrade as many homes as possible to a C rating by 2030.
The Residential Landlords Association said it fears this would mean upfront costs for landlords that end up being passed on to tenants.
Residential Landlords Association policy director Richard Jones said: “With private rented homes having a substantially older stock of properties, improving the energy efficiency of such housing is difficult and costly.
“We welcome confirmation that landlords will not be required to find the upfront cost of energy improvements themselves and it is important that the funding is clearly and easily available for landlords to make improvements.”
What are the changes?
Around a third of private rented households are “fuel poor”, meaning they are unable to afford to properly heat their homes. Among those in properties rated F or G this soars to 45pc, so the Government is taking action as part of its wider push for a “greener” society.
From April next year, the minimum acceptable energy efficiency rating in England and Wales will be E and all landlords will have to improve to this level before offering new tenancies.
The average cost of energy bills for someone living in a property rated G is £2,860 a year, while for an E-rated property the average is £1,710 - so there are significant savings on offer for tenants. A property rated A or B costs on average £750 a year for energy.
The regulations will tighten further by 2020, meaning landlords will be unable to continue with existing tenancies if the property is rated F or G.
Will I be exempt if I have a large buy-to-let portfolio?
The regulations will be applied to all properties and there is no exemption, or extended time period, for landlords with a large portfolio of houses that need work.
This means if you own 100 properties rated below E every one of them will need to be improved to the required level before 2020, or earlier in the case of new tenancies.
However, the regulations do state that in the absence of “no cost funding” landlords can file an exemption rather than improve the minimum level. This is to mitigate the cost to buy-to-let investors.
But if there is funding available, you will have no choice but to commission the work and improve relevant properties to at least an E rating.
What funding is available?
There are two main sources of funding available to make improvements: the “green deal” loan and the “energy company obligation” or "Eco".
The green deal offers a loan for energy improvements, which is repaid alongside energy bills. The expectation is that savings will be made through energy efficiency and those savings are used to pay off the loan.
This means the tenants will effectively pay back the loan as part of their energy bills, but at the same time will be making savings on their bills. The length of repayment should also not exceed the life of the upgrades.
Originally set up as a Government scheme in 2013, funding was withdrawn two years later after only 10,000 households signed up.
The Green Deal Finance Company was sold to private investors in January and as of May is offering loans again. However, the RLA said interest among landlords appeared to be low as the fact the tenants pay seems "counter intuitive".
Eco, also known as “help to heat”, is an obligation placed on suppliers to improve their customers’ energy efficiency in line with targets. This will run until September next year, but the Clean Growth Strategy commits to extending an equivalent level of funding until 2028.
Some local authorities also offer energy-saving grants, which would qualify as a no-cost funding option, but this will differ depending on location.
What are the punishments for non-compliance?
The new rules will be enforced by local authorities. Landlords who don’t meet the minimum requirements can face penalties of up to £5,000 per property.
Renting out a sub-standard property for less than three months will cost landlords £2,000, while those renting them for longer will be fined £4,000. Providing false or misleading information relating to energy efficiency means a fine of £1,000, and failing to comply with an earlier warning will lead to a fine of £2,000.
Fines are capped at £5,000 per property.