Exploring ways to pay for EPC upgrades
According to the government's announced legislation amendments, all new tenancies starting in 2025 will need to have an EPC rating of "C" or higher, with existing leases subject to the same rules starting in 2028.
As part of the government's plan to decarbonize and cut emissions, the requirement that all new and existing leases have an EPC rating of "E" is being changed.
In England and Wales, it is thought that there are about 3.2 million privately rented homes with an EPC rating of "D" or lower. There are many obstacles that landlords must overcome in order to bring this many homes up to code before the 2025 and 2028 deadlines, the most pressing of which is how they will pay for the necessary modifications.
According to a recent Habito analysis, it would typically cost £6,155 to upgrade a property with an EPC rating of "D" to "C." According to Habito's estimate, it will cost around £3,653 to convert a one-bedroom apartment, while for a larger detached property, the cost of modifications is probably going to be closer to £12,540.
While the improvements of rental properties and the subsequent benefits to the environment are to be applauded, there are concerns about the costs of the required works, particularly for landlords with large portfolios, and the impact on the buy-to-let market.
One such concern is that some landlords might decide to sell their properties rather than pay for the improvements, which would have an effect on the amount of high-quality rental stock that is available. According to a recent poll, up to 52% of landlords who own properties with EPC ratings of "D" or lower have thought about selling.
It would be good to speak to a mortgage broker who can help navigate this process and go over the available financial solutions.
Mortgages with a Second Charge
Second charge mortgages are one choice that landlords may want to think about. One of the most frequent justifications for taking out a second charge is to raise money for renovations that will boost an existing property's value or rental income. Landlords are increasingly using these money to increase their houses' energy efficiency, including installing condensing boilers, new double or triple windows, and insulation for the loft and cavity walls.
Landlords have flexibility when using a buy-to-let second charge because to interest-only alternatives and substantial loan amounts—some lenders provide up to £500,000—as well as interest-only options. At West One, we evaluate affordability using rental incomes and the tax bracket of the landlord. Those with less-than-perfect credit scores may be taken into consideration by not credit scoring landlords.
Again would be worth speaking to a mortgage broker because second charge mortgages can frequently be one of the most affordable ways for landlords to immediately access the equity in their properties.
Bridging loans are an additional choice that you may want to speak to your mortgage broker. A bridging loan can be used to pay for small improvements to a home that don't need planning approval, including installing new windows or doors or a new central heating system.
After the renovations are finished, the landlord can move off the bridge and onto a new buy-to-let mortgage. Many lenders, provide green mortgages with favourable rates for properties with an EPC rating of "C" or higher.
When the necessary upgrades can be finished in less than a year, a bridging loan might be a wise choice. A short-term funding option like bridging may not be appropriate if the job is anticipated to take longer than expected.
If your mortgage term is about to expire, a new buy-to-let mortgage can be a smart choice. The equity that has grown in the landlord's property can be accessed and the costs can be spread out over a longer period of time with the help of a remortgage. However, a number of variables, such as the mortgage's duration and the affordability of the repayments, will affect this product's eligibility.
While the appropriateness of each financial product will depend on the specific circumstances of the customer, it is crucial that your mortgage broker presents you this as feasible choices.
How we can help?
We want to help you explore all the options to assist you with meeting these new EPC rating. Keeran in our team is a mortgage and insurance adviser who is able to help with the finance options we have spoken about above and he is able to help with any mortgage or insurance related questions you may have. To get in touch either call him on 07392689937 or email email@example.com
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