Energy efficiency is high on the British regulatory agenda with the looming minimum Energy Performance Certificate (EPC) rating of a C to be required for homes rented from April 2025. Tackling the energy inefficiency in the private rental market is considered essential in pushing the UK toward meeting emissions-reduction goals.
The target for getting all UK homes upgraded to at least a C rating and having a net zero power grid is 2035. Chancellor of the Exchequer Jeremy Hunt pledged £6 billion to insulate homes and upgrade boilers in his budget last year; a parliamentary committee in January asserted that ministers must prioritize the upgrading of leaky housing.
As it stands, nearly 2.5 million properties do not meet this threshold, with upgrade costs averaging £8,000 required according to the English Housing Survey. This is equivalent to a total cost of over £19 billion, with fines of up to £30,000 awaiting landlords that fail to comply.
Market commentators anticipate this is likely to put pressure on landlords to exit the market, particularly given macroeconomic conditions including 11.5 per cent inflation and the fastest pace of interest-rate hikes in three decades. The telegraph reports that landlord property divestment accelerated 17 per cent annually in 2022, relative to 2021, swinging the sector to an aggregate net loss with landlords responsible for 16 per cent of property sales in 2022 but just 13 per cent of purchases.
With the government’s focus on sustainability and net-zero emissions, there is a growing demand for energy-efficient and environmentally friendly housing. According to JLL, BTR (build to rent) developments in the UK are expected to increase by 144 per cent over the next four years, with London being a key market. Such developments are expected to integrate solutions underpinned by renewable energy sources, insulation and efficiency.
“The new energy-efficiency legislation could make math even more difficult for highly leveraged landlords. Privately rented houses are the least likely of all tenures to be insulated.” Iwona Hovenko, Bloomberg Intelligence.
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