It could take more than 26 years for landlords to recoup cost of EPC upgrade

The latest research by London lettings and estate agent,
Benham and Reeves, reveals that it is going to take the average landlord more than 26 years to recoup the costs of upgrading a sub-C EPC rated property in line with Government plans to improve rental property energy efficiency.

The Labour government has stated its plan to enforce a minimum EPC rating of C for all private rental properties but 2030. Recent research from Zero Deposit has already shown that the upgrades required for all UK properties to meet this requirement is going to create a bill of more than £21bn for landlords.

Now Benham and Reeves has analysed the average cost of upgrading a single property to a rating of C or above in England and measured it against the expected annual cash savings that the improved energy efficiency will create* to calculate how long it will take the average landlord to recoup the financial investment of improving their EPC rating.

The average cost of upgrading a buy-to-let property to an EPC rating of C or above in England is £7,396. This improvement is expected to create an energy bill saving of £280 per year with energy prices as they are right now.

As such, it will take the average landlord a total of 26.4 years to recoup the cost of their EPC upgrade with the money they save on their energy bills.

Landlords in London are facing the longest wait to benefit from their EPC upgrade investment. The average cost of upgrading to a C or above in the capital is £7,807 and the expected annual energy bill saving is £247. This means it will take 31.7 years to recoup the investment.

It’s also important to note that across the London rental market, a great deal of stock is formed of Grade II listed buildings, with features such as single sash windows and brick walls which don’t provide landlords with much scope when it comes to improving the energy efficiency of their property.

Landlords in the East Midlands are looking at an average timeline of 30.8 years, followed by the North East (29.8), East of England (27.0), North West (26.9), South East (25.3), Yorkshire & Humber (25.3), and West Midlands (24.2).

Even in the South West where the energy bill savings that result from upgrading to an EPC of C or above are stronger than any other region (£365/year), because of one of the nation’s highest average upgrade costs of £8,201 per property, it still takes an average of 22.5 years to recoup the cost.

Director of Benham and Reeves, Marc von Grundherr, commented

“Since taking power, our new Government has launched a range of initiatives designed to win the vote of the average tenant without much thought for the wider rental market and plans to make EPC requirements of a C mandatory are yet another example of this.

Insisting that landlords make such a sizable investment into the energy efficiency of their property for what is, let’s face it, a very marginal improvement, is only likely to act as another deterrent to investors.

Especially when you consider that it would take almost 27 years to recoup this investment on the money saved on energy bills and the average landlord only remains in the sector for a decade.

What’s more, current plans provide no guarantee that carrying out any work will actually improve an EPC score and when you also consider the lack of tradespeople and the high prices they’re commanding as a result, it’s no wonder many landlords may think twice about their future within the sector.

Those who do remain will inevitably have to pass any cost incurred in meeting an EPC C rating onto the tenant in the form of higher rent, further exacerbating the current issue of rental market affordability.”