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Landlords Shift Investment Focus to Energy-Efficient Properties in Anticipation of Regulatory Change

In anticipation of new governmental regulations, landlords across the nation are significantly shifting their property investments towards higher-rated Energy Performance Certificate (EPC) properties, according to a study by Paragon Bank.

The research, which surveyed over 1,200 landlords, revealed that 15% have already invested in properties with EPC ratings between A and C, preparing for the proposed energy efficiency standards. An additional 10% have obtained D-rated properties with intentions of upgrading them to meet the forthcoming requirements.

As per the proposed legislation, new rental agreements will necessitate a minimum EPC rating of C by April 2025, and all tenancies must comply with this standard by 2028. Although these proposals were set over two years ago, the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, has hinted at a possible delay in their implementation.

Paragon’s research also emphasized that these impending regulations are broadly affecting landlords’ investment strategies. Approximately six in 10 landlords, or 59%, have taken some form of action in response to the proposed changes.

Notably, 19% of the landlords surveyed have already improved properties to attain an EPC rating of C or higher. Another 14% are in the process of implementing energy-saving measures to enhance the energy efficiency of their existing properties.

However, there has been a certain amount of divestment as well. Fewer than one in 10 landlords (9%) have reportedly sold properties that would be too costly to upgrade to the proposed standards, while 7% have offloaded homes that would not achieve an EPC rating of C or higher.

When questioned about future purchasing decisions, 61% of landlords said they would focus on properties falling within EPC bands A–C, while 18% would aim for D or E-rated properties with plans for upgrading. A small fraction, 2%, would target the least energy-efficient properties, rated F and G, whereas 19% stated that EPC ratings would not affect their future investment decisions.

Commercial Director at Paragon Bank, Louisa Sedgwick, reflected on the findings, stating: “Michael Gove’s recent comments mean it’s looking increasingly likely that any new PRS energy efficiency standards will be delayed. Nevertheless, it’s encouraging to see landlords are already building on the progress made over the last decade in making privately rented homes more sustainable.”

Sedgwick also mentioned that while many landlords have purchased homes meeting the new standards, influenced by green mortgage products, a significant number are already making or planning upgrades to improve energy efficiency in their existing properties. She sees a need for financial support and education in what can be a “complex and costly undertaking,” suggesting enormous opportunities within the sector.