Using Specialist Finance to fund EPC improvements
Since April 2020, new and existing tenancies have been required to have an EPC rating of ‘E’; however, this is being revised as part of the government’s strategy to decarbonise and reduce emissions.
Under proposed regulation changes, all new tenancies will be required to have an EPC rating of ‘C’ or above from 2028 with existing tenancies being subject to the same regulations from 2030.
It has been estimated that around 3.2 million privately rented properties in England and Wales have an EPC rating of ‘D’ or lower. Bringing this amount of properties up to the required standards before the 2028 and 2030 deadlines present a host of challenges for landlords, the most pressing being ‘how will landlords finance the cost of the improvements?’
Latest figures from the HomeOwners Alliance estimated that the average cost of updating an EPC ‘D’ rated property to a ‘C’ rating is between £6,100 and £6,800. This will fluctuate depending on the type of property and the amount of floorspace or number of bedrooms. A proposed £15,000 cap would mean that if upgrades exceed this amount, the property can be exempt from further improvement requirements once the cap is reached.
There is a huge opportunity for brokers to help guide their Buy-to-Let clients with properties of EPC D or lower through this and discuss the available financial options:
- Second Charge Mortgages
- Bridging Loans
- Buy-to-Let Remortgages
Second Charge Mortgages
One option for landlords to consider is a second charge mortgage. One of the most common reasons for taking out a second charge is to raise funds to refurbish an existing property to increase either rental yields or the value of the property. It is increasingly common for landlords to use these funds to make energy efficient upgrades to their properties, including loft and cavity wall insulation, new double or triple glazing and installing energy-efficient boilers. Some even choose to install renewable energy sources such as solar panels.
Using a Buy-to-Let second charge offers landlords flexibility with interest-only options and large loan sizes. At West One we assess affordability on rental incomes, taking the landlord’s tax banding. By not credit scoring landlords, those with less than perfect credit scores can be considered.
Second charges can often be one of the most cost-effective ways for landlords to quickly access the equity in their properties and should be an avenue that brokers are discussing with their clients.
Landlords can secure a second charge on one or more properties in their portfolio to improve EPC ratings on other properties in the portfolio. Similarly, landlords may even choose to raise equity against their own residential property to use the funds for EPC improvements on their Buy-to-Let properties.
Speak to a Buy-to-Let expert today!
Bridging Loans
Another option that brokers may wish to discuss with their clients are bridging loans. A bridging loan can be used to finance minor upgrades to a property that do not require planning permission, such as the installation of new windows or doors or the installation of a new central heating system.
A bridging loan is a short-term financing option which secures a loan against a property for up to 12 months in most cases. These loans have a higher cost relative to traditional finance, which is why this option requires a good exit plan after the EPC rating has been improved. Bridging loans can provide a source of funds is a relatively short space of time.
Buy-to-Let Mortgage
A new Buy-to-Let remortgage may be a good option for your client if they are coming to the end of a mortgage term. A remortgage can be a useful way for the landlord to access the equity that has built up in their property and spread the costs out over a longer period. However, the suitability of this product will depend on several factors including the term of the mortgage and the affordability of the repayments.
As with the other options above, landlords can raise capital from one property through a remortgage to invest into EPC improvements on another property if it fits their investment strategy.
While the suitability of each financial product will depend on the client's individual circumstance it is important that brokers are presenting them as viable options to their Buy-to-Let clients.
How can West One help?
West One is a leading provider of specialist mortgages and property finance, with a comprehensive range of specialist lending products including, bridging loans, Buy-to-Let mortgages and second charge mortgages.
Our integrated portfolio of products enables us to deliver seamless access to specialist lending to homeowners, landlords and property professionals.
For more information on financing, and upgrades to meet EPC requirements get in touch with the West One team now.
T: 0333 123 4556
E: hello@westoneloans.co.uk
