It is a big year for energy efficiency, with 2017 marking ten years since the introduction of Energy Performance Certificates (EPCs). These certificates are necessary whenever a home is bought, sold or rented and are valid for 10 years. And change is afoot – with news rules being introduced next year proposing the introduction of minimum ratings in the PRS.
As of April 2018, all PRS homes must have a minimum Energy Performance Certificate rating of E or it will be illegal to rent them out.
The rule applies to new tenancies and renewals, but will be extended to existing tenancies by April 2020.
This means any homes rated F or G must be improved or taken off the rental market, unless they qualify for an exemption.
The government has proposed a cap of £5,000 for improvement costs, but there are fears this is still out of reach for some landlords, many of whom say they will have to increase rents to fund the works.
The RLA is still awaiting a final decision on this.
The government claims most landlords will spend no more than £1,800 on improvements, however, RLA figures show the real average cost to be £6,780 per property.
There are some exemptions to the Minimum Energy Efficiency Standard (MEES), although there is still confusion as to whether listed buildings or buildings in Conservation Areas will be exempt.
Exemptions have to be claimed by registering on the exemptions register, which has already been delayed by a year.
It is supposed to open in October – although, as yet there has been no confirmation of that date.
Although the rules are only due to come in next year, new guidelines were introduced in 2016 compelling landlords to allow tenants to carry out energy efficiency improvements to PRS homes – unless there is a specific reason to refuse consent.
Why are so many properties failing when it comes to energy efficiency?
Around 330,000 PRS properties are rated F and G and will be affected by the changes – mainly Victorian and Edwardian homes.
There are several reasons homes are failing to reach minimum standards.
The first is the age of the housing stock.
In total 34% of PRS homes were built before 1919 prior to the introduction of cavity walls, meaning they are hard to insulate.
Another problem is that EPCs are not reliable for solid wall properties or properties with uninsulated cavities.
The government has said it will address this.
Neglect is also an issue. Often before being purchased as buy-to-lets, properties had been allowed to fall into disrepair by owner-occupiers, who maintained neither the home itself or the boiler.
Paying for improvements – what are the options?
There are a number of options open to landlords when it comes to funding improvement work, with a variety of grants and loans available to cover some or all of the costs.
There may also be schemes local to your area, so it is always worthwhile checking with the local authority.
Green Deal was launched by the government in 2013 to help homeowners, including landlords, thermally upgrade properties.
They were invited to apply for a Green Deal loan through the Green Deal Finance Company (GDFC), which they would then pay back through their electricity bill.
In the case of landlords the tenant would make the repayment, but get the benefit of lower bills. However, funding for the scheme was pulled in July 2015.
Now the GDFC business has been bought by two investment companies, with the new Green Deal a private consortium of seven firms, offering access to loans to pay for energy efficiency works.
John Davidson is managing director of one of these companies, Eco-Energi.
The firm deals with the work from start to finish. It sends out an assessor to examine the property and provide a report and quote on measures that can be financed through Green Deal, the cost and the savings to energy bills. It then sends someone out to do the work.
He said: “The way it works is quite simple. The Green Deal is a loan to the property, not the person and lasts with the property up to 25 years.
“Repayments are made through the meter. The ‘golden rule’ applies so that the expected financial savings would be equal to or greater than the costs attached to the energy bill. Basically, this means the amount you save on your bills will cover the cost of the improvement works.
“An example would be a PRS home that needed £5,000 of work doing to it to meet the new standards.
“Typically, the Green Deal loan would cover £4,100 of this, with the landlord paying the other £900.”
Interest is paid on the loans which is how Green Deal companies make their money, along with fees for arranging the loans and project managing work – acting as lenders and credit brokers.
The Energy Company Obligation (ECO) began in 2013 and compelled major energy suppliers to set aside cash to fund energy efficiency measures.
Energy companies with more than 250,000 household customers, including E.ON, British Gas, EDF Energy and Npower are all part of the scheme, set up to save people money on their energy bills, keep homes warmer and help reduce carbon emissions.
The government says that between 2013 and 2016 around 1.6 million homes had energy efficiency measures installed through ECO grants.
However funding for ECO has been halved by the government through the pressure on energy bills.
The umbrella term ECO actually covers a number of schemes including the Affordable Warmth Obligation, targeted towards low income homes and the Carbon Emissions Reduction Obligation (CERO).
Grants are available to pay for or part fund a range of improvements such as loft insulation, cavity wall insulation, solid wall insulation, double glazing and replacement boilers.
The amount of funding a household is entitled to depends on a number of factors including where you live, the work needed, the savings that would represent and other criteria, with the current ECO scheme due to end in September 2018.
Tenants on benefits and low incomes are eligible for Affordable Warmth.
If you would like to find out if you are eligible contact your energy supplier or the Energy Saving Trust advice service on 0300 123 1234.
The RLA is currently in talks with a major energy supplier to negotiate an exclusive deal for members, with full details to be released soon.
How many landlords have carried out improvement work already?
According to figures from the RLA’s research on Energy Efficiency, one in four have already carried out energy efficiency improvements, spending an average of £6,780.
And although the government has yet to finalise details of the MEES scheme, including the proposed £5,000 cap on spending, Davidson has advised landlords against leaving works until the last minute.
He said: “I have spoken to some clients who say ‘oh, it is a way off, I’ll wait until six months before’, but I would suggest people get the ball rolling sooner rather than later.
“The closer the deadline, the greater the risk. You could be left in a situation in which there are not enough installers to meet the demand as the deadline approaches.”
What does the future hold?
Looking forward, the regulations are intended to be progressive.
Once the E Rating has been achieved the government will consider aiming for a D and ultimately a C rating over the next decade or so.
Davidson said: “People should keep the C rating in mind. There are talks underway at the moment around council tax being associated with the energy efficiency of properties – which is a massive incentive for people to get energy efficient and target a better rating for their properties.
“It has been predicted that energy costs will double over the next ten years – so the more work you do now the more you will save and the more attractive your property will be in future.”
What is the RLA doing?
The RLA has concerns about the recommendations, in particular the way in which homes have been assessed and the cost to landlords.
While encouraging members to work towards the new standard the RLA has been campaigning for a delay on the implementation date for the new rules.
This came after the Building Research Establishment (BRE) warned 100,000 properties with solid walls and uninsulated cavity walls were incorrectly given F and G ratings.
The RLA is asking ministers to put the plans on ice until the EPC methodology has been changed.
Its advice to landlords with solid wall properties in particular is to wait until the changes have taken place then get a new EPC, as existing ones won’t be amended.
RLA research found that of those landlords with properties with an energy efficiency rating of F or G, more than one in three said that they could not afford the required work.
While the government has proposed landlords’ spending on energy improvements is capped at £5,000 the RLA has gone further and asked the government to cut the figure to £2,500, to minimise the impact on landlords and tenants alike.
Our worry is that this could push rents up over and above the resulting savings on utility bills.
Finally, in its election manifesto the RLA asked the government to consider tax deductions when a landlord undertakes any work recommended on an Energy Performance Certificate. This sort of tax relief will reduce the risk of landlords having to increase rent which could possibly push poorer households in the PRS into fuel poverty.