Buy-to-let energy efficiency: the landlord’s guide to rising energy prices
What is the minimum EPC rating to let a property?
At present, energy efficiency standards state that the minimum EPC rating for buy-to-let properties is ‘E’. This legislation was introduced in 2018 and applies across the board to all tenancy agreements, including regulated tenancies, assured tenancies and domestic agricultural tenancies.
This means that regulations governing EPC for landlords state that you cannot legally rent out a buy-to-let property with an EPC rating of ‘F’ or ‘G’. In addition to this, buy-to-let mortgage lenders cannot accept purchases or remortgaging applications when a buy-to-let property does not meet the legally-required energy efficiency standards - although there are currently some exemptions, which we’ll take a look at below.
What EPC rating is required for lettings?
While buy-to-let energy efficiency regulations currently stipulate that a property requires an EPC rating of ‘E’ or above before it can be rented out, there are certain exemptions which apply. Under existing regulations, landlords are not required to spend any more than £3,500 (inclusive of VAT) on improvements to a property to bring it up to an ‘E’ rating on the EPC.
While landlords are encouraged to make all relevant improvements they can (up to the value of £3,500), they can currently apply for an exemption. Exemptions are valid for five years and need to be added to the Exemptions Register. There are five exemptions in total:
- High-cost exemption: This is applicable when even the cheapest, most basic improvements exceed £3,500 in cost.
- All improvements made exemption: When improvements up to the cost of £3,500 have been made and the property still remains at an EPC rating of ‘F’ or ‘G’, the landlord can apply for an exemption which stipulates all relevant energy efficiency improvements have been made.
- Third-party consent exemption: This exemption applies when any recommended improvements to the property require third-party approval (from the tenant, planning department, mortgage holder, freeholder or superior landlord, for example). If the landlord can demonstrate that substantial efforts have been made but no consent has been given, they are eligible to apply for this exemption.
- Property devaluation exemption: If an RCIS (Royal Institute of Chartered Surveyors) registered surveyor has undertaken an inspection and found that any buy-to-let energy efficiency improvements would devalue the property by greater than 5% of its current value, the landlord is eligible to apply for this exemption.
- Wall insulation exemption: This exemption is only applicable when recommended energy efficiency improvements include external, internal or cavity wall insulation, and written testimony by an expert demonstrates that any (or all) of these measures could negatively alter the structure or fabric of the property.
Are EPC requirements changing?
Buy-to-let energy efficiency regulations are changing in 2025. From then onwards, all buy-to-let properties with new tenancies will require an EPC rating of at least ‘C’. Landlords who own properties with existing tenancies will have until 2028 to make the required changes.
According to recent statistics, almost six out of ten homes in the UK currently have an EPC rating of ‘D’ or lower, which means the new buy-to-let energy efficiency legislation is likely to impact most landlords in the UK. The end result is that thousands of buy-to-let investors could find themselves out of pocket as a result of forced property upgrades.
Consultation documents released by the government in June 2021 have hinted that the changes won’t simply stop at level ‘C’, either. This Department for Business, Energy & Industrial Strategy paper hints that an EPC rating of ‘B’ may be required by 2030 - which could leave many landlords with their work cut out.
What energy rating do you need to rent a property?
To recap: at present, the minimum EPC rating for buy-to-let properties is ‘E’. However, this law is set to change very soon, which means the timeline looks as follows:
- 2018-Present: EPC rating ‘E’
- 2025: EPC rating ‘C’
- 2030: Predicted EPC rating ‘B’
EPC for landlords: what will the new EPC regulations 2025 mean?
The main issue for landlords is that EPC regulatory changes will mean further costs. At present, the cost for EPC improvements is capped at £3,500. However, it is possible that this cap could be raised to as much as £10,000.
All EPC changes will need to be implemented at personal cost to the landlord, which of course looks set to mean that rents will increase to cover this. Under guideline documentation, landlords are advised to keep careful records of expenses incurred while improving the EPC rating of buy-to-let properties.
There's a good reason for this: once the cap has been hit, landlords can register for an exemption which means they won’t have to make any further changes until the exemption runs out. However, it’s worth remembering that the EPC looks set to be raised even further in 2030 - landlords should therefore begin planning property improvements in order to sufficiently spread the cost over the next decade.
Are new builds a good option for buy-to-let energy efficiency?
Research suggests that over 80% of newly-built housing in the UK has an EPC certificate of ‘A’ or ‘B’, which is great news for property investors who want to avoid having to upgrade older properties. At the same time, older properties are often available at lower prices, which means investors might be able to purchase an older property and sufficiently improve the energy efficiency at a lower price than a new build with an ‘A’ rating might cost - provided it follows the 5% rule of property investing.
For further resources and tools that could help you make more informed investment decisions, why not sign up to PropertyData for a two-week trial today? You’ll gain free access to a wealth of information which could help you identify the best areas for property investment, and provide you with guidance on the latest buy-to-let legislation.