For years, the government has dealt a heavy hand towards landlords. Crippling waves of anti-landlord legislation has put pressure on the buy-to-let market and tightened the government’s grip on profits. From the 3% surcharge in stamp duty to the removal of the 10% reduction of allowances on expenses, it seems as though no matter the Treasury, the investor always comes out short. Well, now the government imposes more legislative obligations for landlords by enforcing them to make homes more environmentally friendly.
From 2025, all newly rented properties will be required to have an EPC rating of ‘C’ and above. Current legislation allows properties with ratings up to ‘E’ to be rented out. Current tenancies will have until 2028 to comply with the government’s decisions. From the surface, these governmental decisions sound great and this sentiment sounds irrefutable. Who wouldn’t want more environmentally friendly homes? But landlords are left feeling confused and worried that properties will be left unrentable, and subsequently unsellable or un-mortgageable in the future. They are also feeling confused as to what they need to change. Some are simply unaware of the changes needed to comply with the regulations and are unwilling to spend the large amounts of money needed for renovations until more information is given.
These improvements include things like replacing the boiler, the windows, and installing thicker insulation and doors and replacing old appliances.
The median Energy Performance Certificate (EPC) rating within the UK is 66 – 68, equivalent to band D and a quarter of landlords surveyed said they too had ratings of band D or lower. By the government’s new standards, these properties will not be rentable by 2025 unless work is done on them. And, with more than a third of landlords owning properties built before 1940, this could mean a lot of work and money is needed. Landlords need to prepare their portfolios and summarise the costs within the timeframe of completion; just over 2 years.
A study, conducted by Shawbrook found that 25% of landlords surveyed said they had very little knowledge of the upcoming changes, with long-time landlords of over ten years being unaware of the impact the near future will have on their financial futures. Another 15% said they were completely unaware of the necessary changes. Another Survey conducted by The Mortgage Works found that 52% of the 600 landlords they polled were considering selling their properties as they wouldn’t be able to fund the work needed to comply.
Those landlords unaware of the changes can likely face a significant loss of income if work is not completed by 2025. And at a time when the cost of living crisis and interest rate hikes are sapping more and more money from pockets each month, it feels as though these government decisions can’t come at a worse time. It is hardly surprising, that at a time of such economic squeeze, landlords are succumbing to the pressure and having to sell. Naturally, the consequence is a reduction in the market of rentable properties at a time of such high demand. In turn, this will hike the price of rents throughout the country to unaffordable levels for many. The same effects can apply to the buyer’s market. Moneylenders will be forced to reduce applications, increasing demand even further and pushing prices even higher. A net negative in the eyes of most.
According to research conducted by the Financial Reporter, landlords could lose up to £9.5k a year if they fail to reach the 2025 deadline. Another 42% said they would have to ask their tenants to leave for the renovations, leaving less money in their pockets. On average, all the work could cost around £5,900, but only a minority have that amount on hand. Either way, be assured that landlords are going to pass down those costs to tenants.
It’s not all doom and gloom though as buy-to-lets are still considered safe and appreciating investments. A well-maintained, buy-to-let property stands strong as a hedge against inflation. Be aware that inflation is about to hit 13% by the end of the year.
Overall, it’s still recommend investing in buy-to-let properties – they’re one of the best appreciating assets to attain, but government interventionist policies carry on knocking investors down a notch when trying to climb the property ladder. Future projections don’t seem bright either, as the government’s ‘net zero’ plan by 2050 will bring further restrictive policies. Sadly, it seems as though the public has been flipped the bill thanks to the government’s fixation on green environmental policy. Unattended consequences to short sighted decisions is inevitable, especially with centralised planning. The ripples span out too far for the them to see. Will it feel like a drop in the oceans, or a bludgeon in a puddle? Only time will tell, but property is still the life boat.
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