Lenders take on the new EPC requirements

31st October 2018

As from the 1st April 2018 there is a requirement for any properties rented out in the private rented sector to normally have a minimum energy performance rating of E on an Energy Performance Certificate (EPC). The regulations have come into force for new lettings and renewals of tenancies with effect from 1st April 2018 and for all existing tenancies from 1st April 2020. It will be unlawful to rent a property which breaches the requirement for a minimum E rating, unless there is an applicable exemption. A penalty of up to £4,000 will be imposed for breaches.

Mortgage Lender Criteria

While lenders will not want to make their products uncompetitive, they may want to assess the risks involved of lending to customers who purchase property under a buy to let product where that property has an EPC rating of below E.

Some lenders have indicated that the EPC result and predicted fuel bills will now form part of mortgage calculations and it is likely that other lenders will follow.

Where a rating of below E is identified, the customer may be required to carry out the work prior to completion or after completion pursuant to an undertaking. One particular lender requires that the energy efficiency is brought up to the required standard whilst the cost (established by valuer) will be deducted from the valuation figure. Subsequently a condition will be placed on the mortgage offer confirming the works must be undertaken within 3 months.

Not all lenders have made changes to the information they will require from landlords but once the lenders start to fully implement the EPC requirements in their criteria, it may potentially leave landlords struggling to re-mortgage existing properties while they invest in energy efficiency measures on older properties.

Simon Tennant

Nazli Kartal