EPC ratings influence UK property investment trends

Successful real estate investing is all about making the right choices from the start, and many landlords are now considering EPC ratings to future-proof their investments.

As the government continues to raise the bar for standards in the UK buy-to-let industry, property investors are following the new requirements placed on them – and even embracing them.

Energy efficiency is no longer just a buzzword, and environmental impact is now a key consideration in many aspects of life. As such, the government has introduced the 2018 Minimum Energy Efficiency Standards (MEES) for rental properties, which means that energy performance certificate (EPC) ratings for rental homes must now be at least “ E”.

This is expected to be increased to a minimum EPC rating of C on newly let properties from 2025 or 2026, meaning rental property owners who do not meet these standards will have decisions to make.

Newer Homes, Higher EPC Ratings

New research has come to light showing how these energy efficiency requirements affect the private rental sector. Hamptons discovered that real estate investment trends are already leaning toward more energy-efficient buildings.

According to the agency, the start of 2022 has already seen around 50% of investors buy properties rated AC in their energy performance certificates. This is the highest figure on record, and 11% higher than in 2021. In 2020, only 33% of owners purchased homes with the highest EPC ratings.

New construction tends to have the highest energy efficiency ratings, and there seems to have been an increase in the number of real estate investors buying new homes. Others choose to buy properties that have been improved through renovations, Hamptons says.

Benefits for landlords and tenants

One benefit to this, besides the environmental benefits, is the money tenants save on their bills. According to the research, if all PRS homes with EPC ratings of GD became at least C-rated, tenants in England would save a total of £844m on their energy bills a year.

Besides the appeal of living in a modern, state-of-the-art home, these energy savings will massively attract tenants. This is especially prevalent as today’s cost of living continues to rise.

Aneisha Beveridge, head of research at Hamptons, said: “By removing the least energy-efficient rental accommodation from the market, government policy has already reaped the lowest rewards.

“But extending this plan to upgrade homes with a D or E rating all the way up to C will impact a much larger number of households, while generating smaller savings for renters.”

“The policy will mean the average renter will end up paying lower energy bills than the average homeowner, although some rental homes are likely to be taken off the market, putting further pressure on inventory levels. “

Invest in new construction for the future

A recent analysis of all EPC ratings in England and Wales by the Department for Leveling Up, Housing & Communities, demonstrates a distinct polarization in the housing market.

Between October and December 2021, 84% of new builds received an EPC A or B rating. These are the best ratings available, meaning they meet the highest standards in terms of energy efficiency. For potential buyers and tenants, this is a huge selling point not only for lowering energy bills, but also for protecting the environment.

In contrast, 81% of existing properties – older homes – received a C or D rating, while only 4% received an A or B rating. In addition, 12% of existing homes only received a E in their grade, 2% getting F and 1% getting G.

Only 12% of new homes received an EPC rating of C, and less than 6% overall received a rating between D and G.

Old properties are going out of fashion

As Hamptons research shows, a growing number of homeowners are factoring this into their real estate investment choices. Older homes, Beveridge adds, could gradually fall out of favor over the next few years.

“Given that it will be impossible for all homes to achieve an EPC rating of at least a C without significant cost, this will likely mean that older homes will become considerably less attractive to homeowners,” she says.

“Instead, investors can focus their strategy on buying new construction, with rental units focusing on blocks or streets where properties already hold a C-rated EPC certificate or where there is potential for achieve this without major work.”

BuyAssociation offers a range of property investment opportunities, with a particular focus on off-plan new builds or recently renovated properties. Contact us for more information.