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Landlords Prioritise High EPC Ratings in Property Purchases

Latest research by Foundation Home Loans and BVA BDRC reveals a distinct shift in buying preferences among buy-to-let landlords. A considerable 71% of landlords have shown reluctance to invest in properties that fall below an EPC rating of C.

In the BVA BDRC landlord research for Q2 2023, when probed about the significance of a property’s EPC rating on their investment decision, a substantial majority responded that they are less inclined to acquire rental properties that do not meet at least a C rating. This is consistent with anticipated benchmarks for future EPC standards.

Interestingly, a pattern emerged wherein landlords with larger portfolios demonstrated a greater preference for properties rated C or above. Specifically, 74% of those with a property count ranging between six to 19, and a whopping 78% of those with over 20 properties, preferred not to settle for anything below a C rating. Contrarily, only a minority of 18% felt that EPC ratings held no bearing on their purchase decision.

This insightful research, encompassing 983 digital interactions with landlords, was conducted on behalf of Foundation Home Loans, a dedicated intermediary-only lender. The survey spanned the initial three weeks of July 2023.

Furthermore, landlords appear to be well-versed with the potential introduction of legislation mandating a minimum EPC level of C across all private rental sector (PRS) properties. A significant 71% professed comprehensive knowledge, while 24% claimed awareness without grasping the specifics. A mere 4% confessed complete unfamiliarity.

Considering the study’s revelation that the average landlord owns around 3.3 properties rated EPC D or inferior, Foundation Home Loans opined that it was entirely logical for landlords to be well-acquainted with looming EPC regulations and show reluctance towards properties not meeting the C-rating benchmark.

On the matter of property renovations to elevate them to the C-rating, 37% of landlords expressed intent to execute upgrades at the most basic expense to meet requirements. Conversely, nearly 20% voiced plans to enhance the property to boost its long-term value. Surprisingly, 25% of landlords resolved against any refurbishments, opting instead to sell or halt the re-letting of the property.

The predicted expenditure for landlords to achieve the desired EPC Level C for their properties stands at a bit over £10,000. For those managing extensive portfolios, this cost is projected to escalate beyond £11,500.

In terms of financing these upgrades, 57% of landlords intend to dip into their savings (a decline from the previous quarter’s 76%), 33% propose rent hikes (an increment from 26% in the last quarter), 18% look towards government grants or subsidies (previously at 19%), while 19% consider either availing additional credit from their lenders or securing a loan (a slight reduction from the preceding quarter’s 20%).

Grant Hendry, director of sales at Foundation Home Loans, commented: “While we still might be waiting for certainty and clarity over when the Government is likely to introduce its minimum EPC Level legislation for the private rental sector, it’s clear from this research that landlords are aware of what is likely to be coming, and are thinking seriously about their existing portfolios, how they might fund improvements, and what their plans might be when this is introduced.

“With landlords anticipating a cost of over £10k per property in order to improve its EPC Level to C, it is perhaps not surprising they are disinclined to buy properties already below this. In effect, they are future-proofing their portfolios by opting only to buy C and above properties now, while they will presumably focus on those properties within their portfolio which are not currently at this level.”