Funding your EPC Improvements Following Labour’s Energy-Efficiency Announcement

Labour has reinstated the minimum EPC targets for landlords – here's what you need to know and how to fund your property improvements.

The Policy Change

Energy, Security and Net Zero Secretary Ed Miliband has confirmed Labour will reintroduce the energy-efficiency plans Rishi Sunak scrapped back in September 2023. This means all landlords will need to ensure their rented properties have an EPC rating of a 'C' or above by 2030. If not, they face being barred from letting them out.

In his announcement to the House of Commons, Miliband stated, "One thing that this Government will do that the last Government did not is demand that landlords raise the standard of their accommodation to a proper energy performance certificate standard C by 2030."

This reversal of Government plans should support more than three million people facing fuel poverty. 

Energy Assessments

Consultations and training had begun before the election announcement to reform how properties are assessed for their energy efficiency. The new Home Energy Model, a drastic improvement upon the archaic EPC rating system, was set to focus on a property's carbon emissions rather than its gas efficiency.

The new Model would offer more in-depth assessments and account for the benefits of the electrical heating systems that have outdated current EPCs. It's unclear whether Miliband will continue with the plans to overhaul the sector with these much-needed changes. 

Exemptions and Spending Caps 

 For Labour to make a real change for landlords, we need more transparency and clarity than we got from the Conservatives. Further details on exemptions, spending caps, and additional funding for landlords would be a great place to start, as it will allow landlords to make better-informed investment decisions when making the necessary changes to their properties.

As a reminder, the Conservatives had proposed a £10,000 spending cap. Whilst this sounds like a worthwhile incentive, landlords would be disproportionately impacted, with those letting properties in areas with higher property prices, like London, set to benefit more than those in areas like the Northeast. Consequently, research from specialist lender Shawbrook shows the average total spend from landlords who had completed the necessary improvements before the minimum targets were scrapped was a staggering £25,148. 

How to fund your EPC improvements 

In early 2022, Shawbrook Bank published a report showing that 60% of landlords had planned to fund their energy improvements using their own savings. However, this won't be an option for every landlord, so it's important to consider alternative finance options to fund your green improvements.

Capital raise with a remortgage

If you have sufficient equity in your property portfolio, you may be able to release capital from your properties to fund the works. It's important to discuss this option with a broker, as you may face early repayment charges (ERCs) by remortgaging early on in your fixed-rate term. Our brokers can cost up the best option for you.

Further advance

A further advance means taking out additional borrowing with your existing lender. This new loan will last the same length as your existing mortgage, but may be at a different rate depending on your lender's product set at the given time. While this new interest rate is likely to cost more, your existing mortgage repayments will remain the same as you repay each loan separately. Not all lenders offer this option, but it may be a more cost-effective option than a remortgage with high ERCs.

Short-term finance

Many landlords are turning to short-term finance options like bridging, especially as it's become a more competitive market with new lenders entering the space. Compared to a few years ago, pricing is now comparatively more affordable, as bridging rates have not been subject to the same increases as standard buy to let pricing.

Bridging allows you to cover the costs of the improvements and pay the rolled-up interest at the end of the loan term in one lump sum rather than a monthly repayment when you're not earning from the property. Lenders will need to see your 'exit strategy' from the loan, which in this case would be a buy to let mortgage. 

Industry Response to Labour's Changes 

Meera Chindooroy, the Deputy Director of Campaigns, Policy and Public Affairs at the NRLA, responded on behalf of the landlord association:

"Creating energy efficient homes is a win/win – tenants have cheaper bills, and the property is more marketable as a result. However, the costs to get some homes, typically older properties, to a C grade is, quite simply prohibitive for smaller landlords.

"Our research shows that, contrary to popular opinion, most landlords are not property tycoons with money to spare, and with improvements potentially costing tens of thousands of pounds, it is essential that the government comes up with a plan that will work across the country."

While 2030 may sound a little way off now, landlords will have to account for the time and cost of completing the necessary work. The sooner we have clearer government guidelines, the more likely the sector is to reach these new green targets.

Informative Blog: How to Fund Energy Efficiency Improvements

Free EPC Calculator: Check your property's rating

Mortgage Finance Brokers (MFB) is a mortgage broker specialising in buy to let finance, homebuyer and commercial mortgages, and short-term finance. Registered office 17 Kings Hill Avenue, Kings Hill, West Malling, ME19 4UA. Company registered in England and Wales No. 2502713. Mortgage Finance Brokers Limited is authorised and regulated by the Financial Conduct Authority (313537) to transact regulated mortgages.