Costs of energy efficiency improvements weigh on landlords who already face higher rising mortgage rates
Landlords, battered by high interest rates and tightening energy-efficiency regulations, are losing patience with the property market.
Barry Webb (pictured), chief executive of Mortgage Saving Experts, said he has noticed this particularly in the south of the country, where rental yields are lower because property prices are higher. Fewer landlords have been purchasing properties with lower Energy Performance Certificate (EPC) ratings because the figures just simply do not stack up, he says.
But he also believes landlords have held fire on buying more properties due to an accumulation of factors, not just EPC ratings.
“With interest rates also having increased drastically over the course of 2022, landlords are beginning to lose patience with their treatment in the market,” Webb said, adding that he has seen numerous landlords contemplating selling due to the interest rate increases alone.
Landlords pull back on less energy-efficient properties
The government has proposed rules that, by 2025, all newly rented properties must have an EPC rating of at least C, while existing tenancies have until 2028 to do so.
Webb believes homes with lower EPC ratings will still be desirable for homeowner occupation, but will certainly not be as attractive to landlords. As landlords pull back from such purchases, he said, this will increase the amount of stock available for people purchasing property to live in.
“Landlords may have to sell some of their properties if they cannot get them to the required EPC rating to be able to rent, and there are many factors which need to be taken into consideration in order to proceed with the improvements, such as construction type and age of the property,” Webb said.
Tax rules deter landlords Last straw for landlords
Webb said the government has put immense pressure on landlords in recent years: for example, the restrictions on portfolio landlords regarding mortgage lending, which limits the amount of properties they can purchase due to stress testing of their portfolio.
Webb said landlords now also have to pay tax on the gross rent received and are unable to offset interest on mortgages in their name, rather than through a limited company.
“If landlords wish to put the property into a limited company name, they will have to pay the full amount of stamp duty again,” he said.
Webb believes there are too many constraints on landlords these days and this will deter many from buying properties with lower EPC ratings because this is yet another cost.
“I feel they pay out far too much as it is,” Webb said. “However, as with anything in life, this is another cross to bear for many and we will come through the other side.”
Mortgage rates and EPC costs: seeking a balance
Webb said however, that there is light at the end of the tunnel, noting that mortgage interest rates have started to decline.
“I am sure rates will come back down slightly lower than they currently are, which should help borrowers of all kinds in the near future, landlords included,” he said.
With rates potentially declining, Webb said this would in turn allow landlords to be able to fund the required improvements to reduce EPC ratings.
“This is really only a necessity for landlords, but they have had many bad policies thrown their way which has cost them a fortune in recent years,” Webb added.
He believes the government has prioritised getting people onto the property ladder rather than assisting with the rental market.
“After all, first-time buyers are the demographic which kickstarts the housing market, which is why we have seen many first-time buyer schemes, such as Help to Buy and Shared Ownership,” he said.
Have you seen landlords beginning to avoid low EPC rated properties? Let us know in the comments below.