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Quote Ref: UKIN01

The hidden cost of enforced “eco-rules”

House model made out of grass
31 May 2022

By UKinsuranceNET In Landlord Advice

The government’s mission to improve the energy efficiency of homes in the private rented sector will bring cheaper bills for tenants and mean that the country spends a little less on importing its energy needs. But there is a real risk of such enforced “eco-rules” making the overall housing situation worse while some let accommodation is left empty.

This is the argument in an article published by the Express newspaper on the 20th of May and relates to properties in England and Wales. For legislation in Scotland, please refer to the Scottish Government website.

The rules

Under the Government’s Domestic Minimum Energy Efficiency Standard (MEES) Regulations, any let property must achieve an Energy Performance Certificate (EPC) of at least an E rating. The current regulations have been in force since the 1st of April 2020, and – with a limited number of exceptions – landlords cannot legally let their property if its EPC rating is either F or G.

If the rating is F or G, therefore, the landlord has just two options:

  • immediate measures must be taken to improve the energy efficiency of the property for it to achieve an EPC rating of E or above; or
  • leave the property empty and only relet it once energy efficiency improvements have been made sometime in the future – no action needs to be taken until the property is let again.

Local authorities enforce the regulations, which may issue a compliance notice if it becomes aware of any breach. If the landlord fails to take the necessary action, the local authority may impose fines of up to £5,000 for each dwelling in violation of the regulations.

But that is by no means the end of the story because the government has fairly clear intentions to introduce stricter regulations that will require any new tenancies starting after 2025 to have an EPC of at least a C rating. That requirement will be extended to all tenancies by December 2028.

The costs

Under the MEES regulations currently in force, landlords are required to make energy efficiency improvements only up to a maximum cost of £3,500. When a landlord has spent that amount, they can then register an “all improvements made” exemption for the need to carry out any further works.

But industry commentators – including those cited by the Express newspaper – argue that the works likely to be involved in raising the energy efficiency of relevant let properties to an EPC rating of C or above could cost as much as £10,000 for each dwelling.

In a further blow to landlords who might have been planning to upgrade the energy efficiency of their property, the National Residential Landlords Association (NRLA) reported that the government’s Green Homes Grants Scheme closed at the end of March 2021.

They also to government plans to achieve net-zero carbon targets by 2050. In pursuit of those targets, the government has recently announced the intention to ban the installation of gas and oil boilers in any newly built homes from 2025.

Instead, eco-friendly alternatives – such as the air source and ground source heat pumps described by Thermal Earth – will need to be used. According to energy supplier EDF, heat pumps are more expensive than conventional boilers and presently cost between £4,000 and £8,000 – depending on the make and output – and a total cost, including installation, of between £5,000 and £10,000.

The impact

There is a clear financial cost to those landlords who are forced to carry out such expensive energy efficiency improvements – but there is also a hidden cost likely to impact the wider private rented sector as a whole.

Faced with the cost of upgrading their property – so that its EPC rating is C or above or because it is no longer possible to buy a conventional boiler and a heat pump must be installed instead – many landlords will be faced with a difficult decision, either to:

  • sell up and leave the buy to let business altogether; or
  • leave the let property empty and unlet – if the cost of upgrading the home’s energy efficiency is more than, say, a year’s rent, it is suggested that this could be a viable option.

Of course, the property is potentially withdrawn from the stock of private rented accommodation available to prospective tenants. The shortage of affordable accommodation is worsened, and the current housing crisis will deepen, the commentators argue.

If the government wants to pursue its net-zero carbon targets by enforcing increasingly rigorous eco-rules, yet still persuade landlords that their buy to let business can remain viable, grants must be made available to help with the associated costs, say the supporters of affected landlords.

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