Improving your EPC rating with a bridging loan

By Georgia Galloway | Friday 13th October 2023 | 5 minute read

Rishi Sunak's 2023 keynote speech at the Conservative Annual Conference held in Manchester announced the cancellation of energy efficiency goals for properties.

Subsequently, this announcement relieves pressure on landlords in the Private Rental Sector (PRS) to reach a minimum energy efficiency rating of C or higher.

However, the growing uncertainty of the next general election result means landlords should ensure completing necessary EPC improvements remains a top priority. 

Graphic displaying the A to G EPC energy efficiency rating of a home

What is an EPC rating?

An Energy Performance Certificate (EPC) identifies the energy efficiency of a property, with grades from A for highly efficient properties to G for the least efficient.

This rating system helps potential buyers or tenants understand the impact their home will have on their energy bills. In line with reducing carbon footprint, legislation had initially set April 2023 as the deadline for all rental properties in England and Wales to achieve at least an 'E' rating on their EPCs.

This September, Prime Minister Rishi Sunak, declared the scrapping of the planned energy efficiency policies for properties. While this announcement may provide some reprieve for landlords in the short-term, this may be short-lived.

The result of the next general election, should there be a new government, could potentially lead to the reintroduction of the EPC regulations.

As Labour maintains its lead in the polls, the shadow secretary for climate change, Ed Miliband, is already advocating for minimum EPC ratings.

Economic implications of the property's EPC rating

A property's EPC score doesn't just influence environmental factors; it also impacts its market value significantly. For instance, two similar homes can vary in price based solely on their EPC rating.

Properties with a better EPC rating are more attractive to potential buyers and tenants because they promise lower energy costs. On the other hand, properties that score poorly might take longer to sell or rent out.

Finbri's 2023 Landlords' Report found that 48% of UK landlords think EPC ratings are 'Very or Extremely important' when buying an investment property, and 48% believe EPC ratings are 'Very or Extremely important' to their tenants.

At the same time we discovered 32% of renters consider EPC ratings to be 'Important' when choosing their current rental property, with an additional 29% believing EPC ratings to be 'Very or Extremely important'.

Factors impacting your property's EPC rating

The Energy Performance Certificate (EPC) reflects the energy efficiency and environmental impact of your property. A few key elements play significant roles in determining this rating.

Heating System: A property's heating system greatly influences its EPC score. More efficient systems, like condensing boilers, typically give higher ratings because they use fuel better, thus reducing CO2 emissions.

Influence of Insulation: Insulating a home generally increases energy efficiency by reducing the demand for heating, thus resulting in less energy consumption. Loft or wall insulation helps keep heat within the house, lowering heating demand and reducing energy usage overall.

Type of Energy Source Used: The type of fuel used by appliances and for heating can affect an EPC rating too. Electricity generally leads to lower scores than gas or oil as it produces more CO2. So properties using renewable sources such as solar panels often have better ratings due to their low carbon footprint.

Rewards from Renewable Technologies: Eco-friendly technologies like solar panels, wind turbines, and biomass boilers also help boost your EPC rating because they generate electricity without releasing harmful gases into the atmosphere - something traditional fossil fuels do when burnt for power generation.

Ways to improve your property's EPC rating & their costs

Making energy-efficient changes is the key to boosting your property's Energy Performance Certificate (EPC) rating. 

Insulate Walls: Consider adding insulation to both walls and roof for maximum efficiency gains; this might involve cavity wall or solid wall insulation, depending on your property type. Cavity wall insulation could save you up to £145 annually and could enhance energy efficiency by around 25%.

Roof or Loft Insulation: Roughly a quarter of home heat escapes through the roof if it's not insulated. Investing in loft insulation would also boost efficiency by about 25%, costing anywhere from £300 for professional installation, and could reduce energy bills by £315 per year. 

Invest in Double or Triple-Glazed Windows: By investing in double or triple-glazed windows, not only will you enhance comfort levels but also see reductions in heating bills. Consider replacing them with double-glazed ones, which can bump up your EPC rating by another quarter - at an estimated cost range from approximately £4,500 and upwards based on size and number replaced.

Upgrade the Boiler: It's likely that boilers over 10 years old aren't very energy-efficient. A modern condensing boiler can be up to 34% more efficient and significantly improve your EPC rating. Plus, a new boiler means less risk of costly breakdowns. This kind of upgrade typically ranges from £600 to £2,500 depending on make and model.

Renewable energy sources: Solar panels are the prevailing choice for residential renewable energy, and after the initial installation expense, they can substantially cut down energy bills. Approximately the installation cost for solar panels is estimated at £5,500. However, you can expect annual savings of about £325 once they are up and running.

The increasing cost of upgrading EPC ratings

While the costs of these upgrades might seem reasonable individually, they will quickly add up and can cost a considerable sum combined. Landlords with a multi-property portfolio will soon see this amount become more significant if improvements are needed on multiple properties.

The typical cost for homeowners in the UK looking to increase their EPC rating is around £13,981.87. Meanwhile, for properties in London, the average price for such improvements stands at £14,589.80, according to Dashly.

Savills' analysis also indicates that, on average, it would require approximately £27,366 to enhance a property with a G rating to achieve a C rating. 

It's important to note that the government has (currently) mandated that all homes attain a minimum EPC rating of band C by 2035.

Financial assistance options available

Landlords can access various financial assistance schemes for EPC upgrades. These schemes cater to small and large portfolio landlords, offering solutions for budget constraints. 

The Boiler Upgrade Scheme (BUS) offers grants to facilitate the installation of heat pumps and biomass boilers in residential and non-domestic properties.

  • £5,000 for the installation of an air source heat pump. 
  • £5,000 for the installation of a biomass boiler. 
  • £6,000 for the installation of a ground source heat pump, which includes water source heat pumps.

From Monday 23rd October, grant amounts will increase: 

  • £7,500 for the installation of an air source heat pump.
  • £7,500 for the installation of a ground source heat pump.
  • £5,000 for the installation of biomass boilers. 

The ECO4 scheme also provides grants to property owners with eligible residents, including those on universal credit, child benefits, or state pensions, to enhance energy efficiency. This scheme is set to continue until March 2026.

While Sunak's cancellation of energy efficiency goals may provide temporary relief for landlords, it's essential to remain proactive in improving the property's EPC rating.

Using bridging loans to finance property improvements

Bridging finance provides landlords with quick, short-term borrowing options to fund property upgrades efficiently, enabling them to make improvements rapidly while minimising disruptions for their tenants.

With the high costs typically associated with meeting the mandatory EPC standards, landlords are increasingly exploring funding alternatives like bridging loans.

Why you should consider a bridging loan…

Rapid Access to Funds: Bridging loans are typically faster to arrange than traditional mortgages or financing options. This means you can access the funds quickly and improve energy efficiency sooner. 

Substantial Improvements Needed: Landlords requiring improvements on several properties may require a bridging loan to cover these costs - as mentioned previously, upgrades could potentially cost £27,366 per property.

Minimised Tenant Disruption: Bridging loans allow you to finance property improvements without causing significant disruptions to your tenants. Since these loans are short-term, you can complete the upgrades quickly and potentially minimise the inconvenience to your tenants.

Using a bridging loan can provide quick access to funds for energy-efficient upgrades, ensuring your property remains attractive to tenants and future-proofing it against potential regulatory changes. 

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