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How do landlords intend to fund EPC changes for properties in the PRS?

21 Feb 2023

How many current private rental sector (PRS) properties have an EPC rating of below C, are at threat of not being lettable after the 2025 or 2028 deadlines?

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Industry data, we have gathered appears to put this around about 60% with most lenders’ mortgage books appearing to chime with this.

The latest Landlord Report, conducted by BVA BDRC on behalf of Foundation in December 2022 lends weight to our understanding. 752 landlords took part in the research, and the figures are that almost four in 10 of their properties have an EPC rating below ‘C’.

On average, landlords currently hold 2.9 properties below the C level – however, for those with larger portfolios, this increases to 9.8.

The research also shows that 66% said they were aware and understood the potential EPC C level legislation which we are anticipating, while 25% were aware and didn’t understand it, and a relatively small 9% were not aware at all.

What this means is that a large number of landlords are going to need to think about whether they want to do the work required, or divest those properties from their portfolios and out of the PRS.

Given the current level of supply – that the majority of PRS landlords are not expected to sell up, especially if they are still making a profit from their investments.

According to the research, landlords themselves believe it is going to cost more than of £8k per property in order to upgrade those not currently at C to that level. Larger portfolio landlords believe the figure is more likely to be closer to £9k, likely due to their broader property types.

The majority of landlords – 62% - currently believe they would simply dip into their savings to carry out this work, but again this could add up with a larger portfolio.

The research suggests that 10% of landlords would take out a loan to fund any works, 8% would release equity from their portfolio, and 6% would seek a further advance from their lender. Landlords are likely to need adviser support to achieve this, and with a growing number of product options available in this space, advisers should be perfectly placed to provide the solutions that landlords need.

59% of landlords said they would be looking to purchase a property rated A-C if they buy in the next 12 months, while similarly, 50% of landlords said that if they were to sell a property from their portfolio it would be more likely to be one rated D-E.

This issue should open a further door for advisers in terms of them being called upon to help landlord clients ensure their properties are up to the right EPC level.

*This article was originally published on BTL insider

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