The costs of upgrading properties to meet new energy efficiency standards are likely to be passed on to tenants via higher rents, according to a bank lending to buy to let investors - and the sums involved could be higher than expected.
A new report - Confronting the EPC Challenge from Shawbrook Bank - says that with landlords having to make improvements to their properties ahead of the proposed 2025 deadline, tenants could soon see their rents rise as costs come in for the expected work.
When asked how much they believe they would need to spend on making the necessary improvements, landlords estimated that it would cost £5,900 on average to improve their properties.
The bank warns that this figure could be significantly underestimated as landlords who have already made improvements to their properties have spent £8,900 on average to date. Wider market issues such as labour and material shortages could also cause landlords’ final bills to rise.
Tenants in London are most likely to see these costs passed onto them with 68 per cent of BTL owners in the capital saying they’d pass at least some of the costs on to their tenants in a bid to recoup the cost of carrying out the improvement works.
Emma Cox, real estate managing director at Shawbrook Bank, comments: “Landlords will need to strike an important balance when it comes to making the necessary energy efficiency improvements to their properties. While work needs to be carried out quickly to prevent any void periods during a tenancy, having a clear plan in place as to how they will fund any necessary works is crucial.
“Our research has shown that landlords may be underestimating the costs involved, leaving them open to unexpected bills. As a result, tenants could be caught in the crossfire as landlords seek to recoup some of the costs. While tenants can expect to benefit from cheaper energy bills as a result of greater energy efficiency, any savings on bills could be outweighed by a market wide rent rise in 2025.
“For landlords unaware of the level of work that may be needed on their property, or properties, as well as any associated costs, speaking to a mortgage broker or lender sooner rather than later could help to paint a clearer picture. Understanding when they need to begin works to meet the proposed deadline will allow landlords the opportunity to fully assess their options and funding requirements.
"Landlords have a key part to play in the drive towards a greener future for the UK. While challenges and questions still remain, bringing the wider market together to educate landlords and support tenants during the process will help to mitigate some of the upcoming challenges.”