The wonderful Labour government has very generously given private Landlords until 2030 to improve the energy performance of rental properties to an EPC of C for incumbent tenants. For new tenants they need to achieve this by 2028.
I agree with the idea of energy efficiency in the home but it needs to be economically viable.
Ignoring the fact that the EPC scoring system is a work of fiction (for example installing triple glazed windows doesnt improve scores) I thought it would be interesting to work through the financial side of the EPC targets.
Social and council tenants currently do not have EPC targets of E (the current minimum for private landlords) although Labour seem to be suggesting that there won't be a 2 Tier system and that council and social landlords will also have to achieve C by 2030 (previously it was 2050 to achieve E). Although I suspect the council and social landlords wont have huge fines if they fail to achieve C. Anyway it seems councils are buying fake EPCs anyway to achieve C
Assuming it costs £15,000 to upgrade a property (and assume 50% need upgrading) then the Government's 4.1 Million council properties will need £30 BILLION spent on them to achieve C. The vibe is that tenants won't be expected to pay more rent so who is going to pay for this £30 BILLION investment? Rachel keeps telling us they are cash strapped and have budget black holes so where is this £30Bn coming from?
Us - the taxpayers I guess will be subsiding these upgrades.
The Government claims the improvements will save tenants £240 on energy bills.
Let's take a look at my remaining rental properties (I've been selling or re-purposing to exit the market).
Property 1
Current score of 58
Need to achieve 69 so an improvement of 11 points.
Property is already double glazed, has an energy efficient boiler and LED lighting.
The EPC report recommends
1/ External wall insulation costing £4,000 - £14,000 (probably closer to £15,000 cost) saving £154 (not sure I can do this - I dont own the land over which the insulation would be on).
2/ Install floor insulation costing £800 - £1,200 saving £56. I've done this in another property which had damp problems and that cost me £6,000 10 years ago so I suspect the real cost is closer to £9,000 now.
3/ Install Solar photovoltaic panels costing £5,000 - £8,000 saving £332 per year.
The report doesnt mention insulation, windows, boiler etc......These have already been done.
So the break-even on the wall insulation is 100 years. Break-even on flooring insulation is 160 years. The break-even on PV Solar is supposedly 24 years (I suspect it's nothing like that since they have a viable life of about 15 years).
Assuming I have to spend £15,000 then the interest I could get by not spending it and saving in the bank is around £750 per year (5% interest rate). I'm better off giving my tenants the £240 the government thinks this expenditure will save them than spending the money. And according to my calculations, the EPC will still not be C after spending £15,000.
I'm not going to spend this - if no leniency then I will evict the tenant.
Property 2
Current score of 66
Need to achieve 69 so an improvement of 3.
Property is already double glazed, has an energy efficient boiler and LED lighting.
Currently the insulation is not 270mm (at least not consistently). It recommends upgrading at a cost of £350 saving £40 per year. I will do this. Not worth doing this at the moment as it will be disruptive and messy for the tenant. I will wait until they decide to leave.
We are still 1 point away from C after upgrading the loft insulation. Hopefully there will be leniency as the next recommendations are
1/ External wall insulation costing £4,000 - £14,000 (probably closer to £15,000 cost) saving £231
2/ Install Solar photovoltaic panels costing £5,000 - £8,000 saving £332 per year.
I'm not going to spend this - if no leniency then I will evict the tenant.
Property 3
Current score of 63
Need to achieve 69 so an improvement of 6
Property is already double glazed, has an energy efficient boiler and LED lighting.
1/ External wall insulation costing £4,000 - £14,000 (probably closer to £15,000 cost) saving £343 per year. The property is a listed building so I can't do this.
2/ Install floor insulation costing £800 - £1,200. I'm not sure the tenant would be happy about this. They have installed laminate flooring which would need to be ripped up......Some of the floors are concrete so they would need to be dug up. Highly disruptive.
3/ Install a room thermostat costing £350 - £450 saving £39. Not sure why the report has this - it's already there. Anyway an extra 1 point.
4/ Install solar water heating £4,000 - £6,000 saving £42. Can't do this - it's a listed building. Also technically it would be challenging and disruptive. Currently it's an energy efficient combi boiler so no tank. A tank would need to be installed and the boiler replaced. Solar panels would need to be installed. A new boiler would be £3k, a suitable tank £1k, solar panels £2k - it's going to be closer to £10,000 not £6,000 !
5/ Install Solar PV panels costing £5,000 - £8,000 saving £332. Again it's a listed building and that wont be allowed.
So this property will not achieve C.
I'm not going to spend this - if no leniency then I will evict the tenant.
Now assuming I was stupid enough to spend £45,000 the government will treat this as capital expenditure (ie no tax relief). I can't offset this against revenue so I only get capital gains relief at some point in the future after inflation has depreciated the capital sum.
Now currently the combined rent for these properties before costs is £24,000 so I am effectively allowing the tenants to live there rent free for 2 years if I spend £45,000 with no income and a supposedly more energy efficient house which will save them money.
Assuming I borrowed the £45,000 I would need to pay 6% interest at present at BTL rates (6%). Now I will be generous and say I depreciate the capital outlay over 20 years. The interest will cost me £2,700 per year. The capital amortisation is £2,250 per year. However section 24 doesnt allow tax relief on borrowing - you are given an allowance. You also cant claim interest relief beyond the value of the loan at first ever rental. In reality this could be additional borrowing which has zero relief.
Anyway lets assume the loan interest is allowable for now. So I need to increase rents by £4,950 per year to simply cover my costs and depreciate the spend over 20 year. That means I would need to increase the rents by 21%.
However after reading how this spend cap works, the £15,000 is a cap on spending and the resulting exemption after spending £15,000 is only for 5 years. I would need to keep spending £15,000 every 5 years until the magic (or is that mythical) "C" is achieved. That means I need to amortise the £15k over 5 years not 20 !!! That means I need to increase the rent for each property by £3,450 per year.
Tenants will doubtless see this as amazing value - their rent has gone up by £3,450 per year and has saved them £240 per year on their energy bills.
Sadly it doesn't end there. There are not taxable allowance (capital allowances) or other tax concessions for this investment so the £3,450 additional rent will be taxed at 20%. I will pay an additional £708 per year in tax. So let's go round the loop again - I will need to add £772 to the rent to cover the tax bill just to be neutral and not out of pocket. So the rent increase will now need to be £4,312 not £3,450.
Rent increase £4,312
Tax on rent £862.40
Interest on £15k £450.00
Capital allowance £3,000.00
This £4,312 rent increase saves the tenant £240 on their energy bill. The government wins £852 on extra tax. I am overall neutral. The tenant is £4,062 worse off per year.
For my tenants, their rent is going to have to increase by something like 40 - 60%. With that kind of increase it means the rent for a 1 bedroom flat is now higher than the rent for a 3 bed house which is already C so Landlords would need to increase the house rent to stop the resulting pricing anomalies even if they didnt spend the money!!
The majority of landlords are going to have to do this or exit the market. If they exit there will be mass homelessness. That means there will be hundreds of tenants fighting for every "C+" property. Rents will rise - classic supply and demand. Whichever way - rents are going to have to rise significantly if this crazy scheme happens in it's current form.
Now Generation Rent are insisting that Landlords be prohibited from increasing rents to comply with the EPC target. Now the Government's own numbers say the tenant will save £240 per year in energy costs. Surely the tenants can afford to at least pay £240 extra rent which the £45,000 expenditure has saved them ! If this rule comes in then there must be a level playing field - councils cannot increase their tenants rents and tax payers or council tax payers can't be expected to pay the £30Bn it will cost to make council houses compliant.
Why isnt capital expenditure, which is beneficial to the tenants, not allowed? We as consumers have to pay for Water Companies and Renewable companies (green energy levy hidden in your energy bill) to build infrastructure so why are landlords any different? Two Tier again.....
So let's briefly go back to energy bills. The government narrative is that Landlords are the root cause of this:
“Everywhere I go I meet people who have seen their energy bills and living costs skyrocket in recent years – others are forced to pay high rents to live in cold and damp homes,”
“Today this government is setting out a bold new plan as part of our Plan for Change to bring down costs and transform living standards across the country. "
The government is not actually doing anything - they are forcing Landlords to spend money.
So according to Ofgem the typical energy bills in 2025 are £1728 per year. Let's break this down.
VAT (paid to the government) £82.76
Green levy (paid to the govt) £330.33 Most of this goes to companies like Siemens to
subside wind turbine construction.
So tenants are paying £413.09 to the government in taxes. £1324 goes to the energy companies.
So these supposed EPC changes are supposed to reduce tenants bills by £240 yet the government is taking £413 in taxes. The taxes are nearly twice the supposed EPC savings ! ....
Typical government narrative - distract eyes away from the pain and suffering they are causing by blaming someone else.
Of course bills have sky rocketed - the government is taxing people to stay warm !
If there are landlords reading this I would suggest Solar PV is the best solution to the EPC problem
1/ Comparatively it's cost effective to improve energy efficiency compared to exterior insulation etc
2/ It will reduce tenants bills directly (16% of your electric bill goes to the Green levy whilst 5.5% is for gas - go figure - no wonder the govt wants everyone to have electric heat pumps - more secret tax than gas).
3/ Reduced electric spend means less green levy contribution to the government
4/ Reduced electric spend means less VAT contribution to the government
It's probably the one thing where landlords can punish the government by reducing their tax income !!
A 2.5kw PV solar system generates 1,900 kwh per year (typical). The current price cap is 24.86p/kwh so this would reduce a typical tenants bill by £472.34 per year. That robs the government of £22.49 in VAT and robs them of £65.15 in green levies !! Total of £87.64 tax avoided.
Assuming landlords install 1 million solar systems for tenants, that will deprive the thieving government of £87 million in tax per year. Ok that's not a Rachel sized black hole but at least it will be something.
Sign my petition to make councils and social landlords comply with the same rules as private landlords and stop council tenants living in cold damp homes.
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