We’re over halfway through 2023, which means that the updates to the Domestic Minimum Efficiency Standard regulations (MEES) for all newly rented properties come into play in less than two years. The new efficiency standards for properties with existing tenancies will be enforced in 2028. Sounds like ample time for landlords to get to grips with, right? You’d be surprised.
The geopolitical climate is still wreaking havoc on supply chains and labour in the UK, especially within the construction industry, where just this month, the government declared bricklayers, plasterers and other job roles on a ‘shortage occupation list’. With less competition and fewer resources on offer, price hikes in the sector are inevitable.
And as more and more real estate investors scramble to make renovations and complete retrofitting to meet the new standards, many of which will be on a large scale, labour and materials may be hard to find, and costly to source. So, if you’ve got a portfolio of residential properties, and you’re still kicking the can down the road, putting off improvements and avoiding your EPC rating, then now’s the time to act.
As it stands, it’s not too late to get your rental homes into shape. And although it may seem like a daunting task, there’s plenty of support available from both the government and debt financing partners such as OakNorth, that can help you move faster to meet the deadline.
The true cost of carbon – why MEES matters more than ever
MEES regulations are nothing new. They were proposed in the Energy Act of 2011 and formally introduced by the government in 2018 to make sure that all rental properties had a reasonable Energy Performance Certificate (EPC). From that point, all properties, by law, could only be let out if they had a certificate of E or above unless there was a valid exemption.
Now, new minimum efficiency laws have been ushered in as part of the UK’s efforts to decarbonise and meet its net zero goals ahead of 2050. Homes, and how they’re used, play a huge role in climate change. In 2022, the ONS reported that households account for 26% of the UK’s total emissions. The European Commission states that the buildings in EU countries collectively contribute 40% of all energy consumption and over 36% of greenhouse gases. This is unsurprising, given that the average home releases 8.1 tonnes of Co2 per year.
Since the first MEES rules, we’ve had record highs of inflation and an energy crisis which saw the government stop offering financial support for energy bills for all households. Because of high fuel costs, there is even more urgency for scalable insulation programmes that reduce fuel poverty, by helping residents heat their homes more affordably and sustainably.
What’s new for domestic leases?
To tackle rocketing bills and meet Net Zero targets, the government needs to do more, faster. So far, the journey to a greener future has been slow, especially regarding the UK’s built environment, which is made up of diverse and complex buildings.
To deal with the energy and climate crisis, a number of policies relating to the housing sector have been proposed:
- Banning the sale of gas boilers by 2035
- A ‘Heat Pump Ready’ programme which provides funding for heat pump technologies to support the government’s target of 600,000 installations by 2028
- Additional funding of £1.425 for public sector decarbonisation
The above goes hand in hand with the new change to existing MEES regulations. In 2025, new tenancies can only be granted for domestic properties with an EPC rating of C or above. By 2028 existing tenancies can only be renewed in properties with an EPC rating of C or above.
The adoption and effectiveness of these changes will be key driving factors for the success of the rental and real estate industry, but there’s a lot of work for landlords to do. Yet, buy-to-let owners can’t achieve these ambitious targets on their own, nor should they have to.
Financing partners must play their part in offering fast and flexible business loans that can be used to develop greener buildings and make lasting improvements to existing ones. If specialist retrofit financing is difficult or onerous for property investors to get hold of, they’ll likely sell up, rather than risk penalties or empty tenancies.
Landlords are already feeling the pressure of increased mortgage rates and inflation so there needs to be enough support in place to initiate good outcomes, rather than drive people out of the industry.
Why it’s time to get real about retrofits
UK Finance estimates that there are currently 16.7 million properties in the UK that have an EPC rating of below C. Over half of privately rented homes currently hold EPC certificates for D or below, which need to be improved. Regionally, the South has the most properties with ratings of C or above.
Realistically, if you’re a private landlord hoping to improve your property to a ‘C’ or higher, you’re going to need to look at a whole house retrofit. Whole house retrofits are the ‘gold standard’, as they focus on implementing improvements across the whole property that stand the test of time.
They don’t just aim to meet the bare minimum requirements but take a holistic look at a building to improve it comprehensively, making it work together in harmony with its inhabitants. Although it’s more expensive to get a full property retrofitted, it has a few long-term benefits:
- They focus on future-proofing your property, which means you’ll likely need to make fewer changes during your ownership. This reduces the amount of labour and materials costs overall.
- A full retrofit will likely improve the valuation of your property.
- Your properties will become more desirable to tenants and future buyers – in fact, around 71% of buyers actively consider the energy efficiency of a property an important part of their decision-making.
Some key retrofit measures to consider include:
- Insulation: Does the property have the right insulation to keep heat in? This doesn’t just apply to walls; consider flooring and windows, too, especially in older period homes.
- Ventilation: The right ventilation stops rising damp and other issues during extreme weather, it also helps keep the home the right temperature so external energy can be minimised.
- Airtightness: Are windows and doors well-fitted and double-glazed?
- Light: Can you install LED lighting and make the most of natural light within the building?
- Energy sources: Can all of these be renewable and fossil-fuel-free? Have you considered solar panels or renewable heat pumps instead of gas boilers?
Financing a greener future
Almost one in 10 landlords in the UK have more than 20 properties in their portfolio. That’s a lot of work to do before the deadline. So, don’t wait to make the changes – chances are, a lot of retrofit or building firms are already inundated with work as homeowners work hard to bring their bills down. Planning a retrofit for your private leases is not a quick one and done. It takes time, money and expertise. But, with the right know-how and financing partner, you can bring forward a greener future, and make your properties pay the dividends.
At OakNorth, we’re proud to have supported operationally net-zero housebuilders, and we’re here to give real estate investors the same opportunity to decarbonise. We know the property sector well, with regional funding experts across the UK. So, if you’re looking for retrofit financing for your residential portfolio, get in touch today.
