In just a few days time (on 1st April 2018), the legislation relating to Energy Performance Certificates (EPCs) in England and Wales will change. Whilst it is clearly beyond the remit of the mortgage intermediary to provide advice on EPCs to their landlord clients, it can be beneficial to have a working knowledge of the key points. This should allow you to spot potential issues which could arise during the purchase process, and if things do go wrong you are also more likely to be able to help your client.
What then are the changes? Well, every residential property is graded on a scale of A to G, with A being the most energy efficient and G being the least. Until now, landlords could let a property irrespective of its grading, and it was left to the market to determine whether properties with poor energy efficiency would be lettable. Estimates suggest that circa 10% of all residential property is currently rated F or G. It is may be the case that Buy to Let properties are disproportionately affected.
From 1st April, it will be illegal to let a property under an EPC with a rating of F or G, and this applies not only to new tenancies but the renewal/extension of existing ones. Where a property is let with an illegal rating, the penalties can be substantial. There are circumstances under which an exemption can be obtained, but the correct process for obtaining this must be followed and the exemption must be registered on the Public Exemptions Register.
The rules relating to the use of properties which are F or G rated apply to let property only; it is acceptable to market for sale a property with an F/G rating because it can be sold for owner-occupation. It is therefore entirely possible that a landlord could agree to buy a property without the estate agent flagging this up as an issue. Yes, the valuer should recognise that it is an issue (or the conveyancer) but do you really want matters to progress so far before the issue is spotted? For re-mortgage cases, it is perhaps even more likely that an unsatisfactory EPC-rated property will be the subject of a mortgage application that you work on as it may have been owned for years and the issue of poor EPC ratings may not be on the client’s radar.
Energy Performance Certificates were introduced in stages from 2007, and the main staging date was probably 1st October 2008, which was when all let residential property had to have an EPC. Given that they are valid for 10 years (for lettings), there will be a wave of expiries about six months from now. It might be worth tucking away this bit of information as it is quite probable that many landlords (especially those with only a small number of BTLs) will have forgotten all about it. Again, it is beyond the scope of mortgage advice to talk about this during the mortgage advice session, but should you come across a scenario where the EPC has expired, your client will probably thank you for pointing this out.
Further, did you know that since October 2015, if a landlord fails to provide an EPC to a prospective tenant, then they cannot later use a Section 21 notice to end a tenancy. Whilst there are other ways of ending tenancies, a Section 21 is often the preferred route as this does not require any proof of wrongdoing.
If you have clients with existing mortgages with the Furness and believe that they will need to undertake works to the property in order to achieve at least an E rated EPC, do talk to us about the possibility of a further advance. We understand the problem and are ready to help.
The above notes are intended to assist you with spotting issues that may exist but are not intended to be a full and detailed description of the legislation surrounding Energy Performance Issues or to provide advice on how to act. For this, we recommend undertaking your own research and/or consulting professional bodies, as appropriate.