What finance options are available to help landlords meet EPC requirements?

The learning objectives for this article are to:

Proposed government regulation may soon mean landlords will need to make changes to their properties in order to meet an EPC rating of ‘C’ or above by 2025 before any new tenancies can be agreed. With costs predicted to be high in some cases, what finance options are available to landlords and how can brokers help?

How much could a landlord expect to pay for EPC changes?

Under current government regulation, landlords are not expected to spend more than £3,500 on upgrades to meet the current EPC requirements for a rating of E. The new changes however, which could see all rental properties requiring an EPC rating of C by 2028, proposes an increase of this cap to £10,000. This would require landlords to make a significantly higher investment to future-proof their properties.

Many landlords, however, are uncertain of the amount they will need to spend to improve their properties, with more than two fifths (44%) stating that affordability is the main barrier for them to improving their properties by the proposed 2025 deadline, according to our latest research. For landlords with just one property in their portfolio, this rises to over half (51%). On average, landlords estimate the cost of upgrading a property with a rating of D or below, is just under £2000 – however, there are concerns that landlords are underestimating the amount they will need to spend.

On top of variation in property construction and condition, there are various other factors – such as supply chain disruption and rising labour costs – that are likely to push renovation costs higher than landlords may have anticipated.

To cover the associated costs, landlords are resorting to a variety of approaches but few are utilising specialist funding to mitigate the expenses. With regards to the landlords who have already made improvements to their properties, more than half (57%) of respondents surveyed have used their cash savings, followed by 30% who have borrowed on credit cards, and under a quarter (24%) who have resorted to a personal loan.

For those landlords with significant property portfolios, or simply with major improvements required for a single property, it is important they are aware of the finance options available to them that can help fund property work.

In this article we will explore the role that brokers can play in supporting landlords looking to finance EPC property improvements, as well as some of the short- and long-term finance options available to them.

How can brokers help landlords looking to finance EPC property changes?

With the proposed deadline fast approaching, landlords now have just two years to complete required improvements to their properties. For those unaware of the changes and of the costs associated, there is a real risk that many could be on the receiving end of a loss of income if they cannot meet the deadline.

As trusted advisers to landlords, brokers are therefore to keep landlords ideally placed of the impending changes, the associated costs they must consider, as well the financial products they can use to help them on their journey to EPC compliance.

With a third (37%) of landlords stating they have little, to no knowledge of the impending changes, pointing them in the direction of information that can give them an idea of the scale of work they need to undertake, will be an important first step to take. By checking the EPC register on the government website, for example, landlords can learn more about their property’s current EPC rating, the potential rating it can reach, and the recommended work needed to get there.

If they are considering funding options, advising them to consider options sooner rather than later will also be vital, as demand for labour and materials is expected to substantially increase in the next few years – driving up costs and extending lead times as the deadline gets closer and closer.

With a number of options already available in the market that can help landlords navigate EPC pressures, it will be important for brokers to keep well-informed so they can best advise landlords on the best solution for their situation.

How can a bridging loan support landlords?

With most landlords expected to need to make property improvements, a bridging loan could help to provide a quick cash injection to fund changes in the short term. The flexibility of a bridging loan is one of its main advantages for landlords – allowing them to leverage the funds in a variety of ways, and at different stages of the property cycle.

Whether they are looking to quickly secure a property purchase, secure funds for refurbishment work such as EPC improvements, or to repay existing short-term finance, a bridging loan can be a great tool to mitigate the impact of the EPC changes. With a vast array of bridging products now on the market, many of which with increasingly flexible features, brokers are in a great position to be able to structure a favourable deal for their clients.

Are second charge mortgages an option?

Sometimes referred to as ‘secured loans’, a second charge mortgage is another option available to landlords looking to make potential improvements. Where a bridging loan may be more appropriate for landlords with multiple properties, or for those looking to make improvements to sell their property, a second charge mortgage could be an option for investors with fewer properties, or semi-professional landlords.

Often used to raise extra money for major repairs, refurbishments or improvements, a second charge helps a landlord to secure funds without having to resort to extending their existing mortgage, or remortgage entirely. This option can be particularly helpful for those with variable incomes – such as the self-employed – or for people who may have faced a drop in credit rating. By having a conversation with their clients about their priorities and approach to EPC improvements, brokers should be able to deem what finance product is best suited to their individual needs.

Incentives available for landlords

While bridging loans and second charge mortgages are two ways to help landlords meet the proposed EPC 2025 deadline, it’s also important to think about their long-term business plans, and how financing can support their goals here too. Given most landlords will be required to invest in various changes to their properties to improve energy efficiency, beyond being able to continue letting their properties, many are keen to receive additional incentives to make these changes.

According to Shawbrook’s research, two fifths (41%) of landlords would like to see the lending industry introduce mortgage discounts for properties with better EPC ratings. However, while a number of lenders in the market have already introduced mortgage products specifically designed to reward landlords with energy efficient properties over the last year, just 18% of landlords are currently making use of them.

These mortgages can be highly beneficial for landlords, and property investors in particular, and allow for a number of cost reductions when applying for new financing. If a landlord can provide evidence that their properties have a high EPC rating or can evidence that they have used the funding to improve the EPC rating of the property, some lenders, including Shawbrook are offering lower interest rates, partial refunds of arrangement fees or even cashback in some cases.

As the property industry as a whole moves towards a more sustainable future, it is reassuring to see that landlords are keen to make use of discounts, but it is clear there is still further education required for the benefits to be more widely understood, which brokers can play a key role in.