Buy to let EPC loans for Landlords

22-August-2023

22-August-2023 15:12

in Bridging

by Sam Hodgson

The EPC regulations for rental properties are changing from 2025. If you’re a landlord looking to refurbish your buy to let property in keeping with these changes, an EPC loan could help.

You may have heard of the Energy Performance Certificate (EPC) and the importance of having one for your rental property. An EPC rates the energy efficiency of a property on a scale from A to G, with A being the most efficient and G being the least efficient.

From 2025, it will be unlawful to take on a new tenancy on a property with an EPC rating below C. With a large portion of the UK's homes built before 1940, it's not unsurprising that the most common EPC rating in the country is band D.

However, the necessary refurbishments required to increase your property's energy efficiency can be expensive. According to research by Shawbrook, 31% of landlords said they only just have enough funds to keep up with the EPC changes, and 14% said they don't have access to the funds at all.

For smaller landlords, the pressure to make these energy efficiency changes before 2025 may present a significant financial strain.

That's where a buy to let EPC loan can come in:

These are loans designed specifically for landlords looking to improve their property's EPC rating and can cover the cost of upgrades such as insulation, heating systems, and double glazing.

And it's not all bad - having a good EPC rating not only benefits the environment but can also help you attract tenants and increase your property’s value.

In this blog post, we'll explore the benefits of improving your property's EPC rating, how buy to let EPC loans work, and whether they're a good option for your investment property.

Buy to Let EPC loans for Landlords

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Can I get an EPC loan for a buy to let property?

Yes, you can get a loan to refurbish your property in line with the 2025 EPC changes.

There’s a range of finance options out there for landlords that can help fund these improvements ahead of 2025.

What are the options?

Should you decide to start on your EPC improvements early, you could remortgage to raise finance to fund the improvements. In many cases, this could be the cheaper option. However, there are a few reasons this might not be an option for you. For example if:

If you have cheap interest rates on your current mortgage deal (e.g a fixed rate from a few years ago), you may want to stick with those rates

Leaving your mortgage plan early could leave you subject to Early Exit Fees

If you have poor credit, you may not have the best choice of mortgage deals on the market

You only have a few months before the 2025 deadline and need to finance your improvements more quickly than a mortgage can allow

While remortgaging can be an efficient way to fund EPC improvements on a buy-to-let property, it entirely depends on your circumstances as to whether or not this is the best option for you.

If this isn't an option for you, don't worry, there are plenty more ways you could finance your EPC improvements to keep earning rental income on your property after the 2025 deadline.

For example, if you have enough equity in your property, you could potentially take out a second charge mortgage on your property, allowing you to fund your EPC refurbishments. In this case, you can continue to prioritise paying back your original mortgage, and the additional loan amount would not be factored into the loan-to-value of your property.

Additionally, you could use an EPC loan to help fund these renovations on your property:

These loans utilise the convenience of short-term finance and can offer exit plans tailored to the needs of a landlord making energy-efficiency improvements. The loans can be secured against your existing buy to let property so that you can get lower interest rates than personal loans or other short-term borrowing options.

The specifics of these finance packages can differ depending on the lender that offers them, but the key detail is that they’re tailored for landlords looking to make EPC improvements.

What if you hold your BTL property through a limited company?

If you hold your buy to let property through a limited company, a buy to let second charge mortgage for a limited company could be the best option for you.

A buy to let second charge mortgage is a financial tool specially designed to help landlords who need to upgrade their properties to meet the new EPC regulations:

Up to 75% LTV for minimum loans of £10,000
Available for up to 4 applicants
Including complex company structures and foreign nationals
Protect a current low-interest rate on your BTL properties
You can op-slice director or shareholder income and use any surplus rent from other properties towards your affordability

They can also be cross-charged over multiple BTL properties (up to 75% LTV), and they're available for MUFBs, holiday lets, standard BTLs and HMOs.

This is often a cheaper option compared to an unsecured loan, so it's worth exploring it as an option with a broker.

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What's right for me?

It's difficult to know what finance option suits your circumstances, which is why working with a specialist finance broker can help make this process smoother. Depending on your situation, not all finance options will be available to you, but working with a specialist broker can get you the best deal for your circumstances.

At Clifton Private Finance, we have expert knowledge of the market, as well as relationships with private lenders who may be able to offer you flexible rates and deals you might not otherwise have access to.

Case Study: Read our case study below on how we helped a client raise £160k capital to renovate a buy to let in Liverpool.

Click here to learn more about refurbishment finance, or give us a call on 0117 959 5094 for a no-obligation discussion with one of our team.

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Will I still be able to buy a house with poor EPC?

Yes, you are still able to invest in a property that has a poor EPC rating. Just as long as you can improve the EPC rating of your property before you rent it out, there’s no reason why you can’t buy a property with an energy efficiency rating below C.

It will be possible to rent out your property once the appropriate changes have been made in line with government legislation.

However, if the property you’re looking to buy has a low EPC rating, this will affect whether you can get a buy to let mortgage.

Short-term finance can be used to purchase property as a bridging loan. Bridging finance can be well-suited to large home improvements because of its flexibility and because it can be used on unmortgageable properties.

Bridging loans could be especially useful to fund the purchase of a property with a low EPC rating and the refurbishments to make it suitable for a buy-to-let mortgage. In such a case, you may then be able to take out a buy to let mortgage to pay back your bridging loan.

A bridging loan lets you buy a BTL, make refurbishments within 12 months (although the terms can be flexible) and then refinance through a BTL mortgage when appropriate.

To get an idea of what improvements you’ll need to make and how much they’ll cost, the government website has a feature that gives you a rough plan for making these EPC changes on your property.

And it’s not all bad news. These improvements will not only allow you to continue earning rental income but are also likely to increase your property’s value in the long term.

Tenants and potential buyers know they will save more money on bills, so depending on the changes you make, and your property’s current value, they will likely be willing to pay more once you’ve made improvements. And even if you don’t plan on selling your property, you may also be able to increase the rent on your property.

However, this type of finance is usually only available through specialist lenders. These lenders can be harder to find than traditional high street lenders because they are smaller or because they are private and require a recommendation to work with them.

Working with a specialist finance broker can allow you access to these lenders and secure funding for your EPC improvements on flexible terms.

Use our Refurbishment Calculator

Our refurbishment finance calculator can get an approximate idea of what a loan might cost you. But keep in mind that a finance broker will be able to fine-tune your expected charges to your circumstances:

Click here to inquire about EPC finance, or you can call us on 0117 959 5094 for a no-obligation discussion with one of our team.

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What is the current minimum EPC rating for rented property?

The current minimum EPC rating for rented property is E. This has been a requirement since 2018 for new tenancies and 2020 for existing tenancies. From this date, it became unlawful for properties to be rented if they have an EPC rating of F or G.

1 in 7 UK landlords are unaware of these upcoming changes, and with 2025 on the horizon, these regulations pose big changes for property owners in the coming years. Taking out a new tenancy on a property after 2025 without improving your property's EPC rating to a C or above could result in a fine of up to £5,000.

EPC ratings were originally introduced in 2008, as a way of recording energy efficiency in homes. They present a way of benchmarking which properties are using energy efficiently during colder weather and offer a straightforward means to improve a property’s insulation and energy usage if its EPCrating is poor.

Need an EPC loan? Book a free consultation below to discuss your options.

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What are the new EPC regulations for landlords from 2025?

The new EPC regulations for landlords mean that properties must have an EPC rating of C or above to take on a new tenancy from December 2025. And this will become mandatory for existing tenancies from 2028.

Why?

In 2021, the government announced its Net-Zero strategy, aiming to get the UK’s carbon emissions to zero by 2050.

With over 40% of the country’s CO2 emissions coming from households, the government has decided to tackle this – starting with energy efficiency in rented accommodation.

The way we use fuel in the UK has changed over time. And our homes are becoming more energy efficient to match.

For example, while the minimum EPC rating for UK households in the UK is band E, the average home in England has an EPC rating of 67 – only missing band C by 2 points.

And by making homes more energy efficient across the country, individual households could reduce their CO2 emissions by tonnes. Not only this but with energy prices skyrocketing in 2022, making sure rented accommodation uses energy efficiently makes living conditions more comfortable for tenants.

Does an EPC Rating affect a buy to let mortgage?

It is likely that the new EPC rules in 2025 will mean big changes for buy to let mortgages. From 2028, all properties with an EPC rating below C will become unrentable. So, from 2025, a buy to let mortgage application on a property with a low EPC rating is likely to be unsuccessful.

You can, however, still get a residential mortgage for these properties, and when you’ve refurbished them to improve their EPC ratings, you may be able to convert to a buy to let mortgage in the future.

Another option would be to take out a bridging loan to buy the property and fund the refurbishments. And you could then convert to a buy to let mortgage once improvements have been made.

If you’re a landlord and you own property with an EPC rating below C currently, you will have to make improvements on your property in order to keep letting to tenants from that property.

If you’re unsure how to fund these improvements, we work with lenders who offer specialist finance products tailored to landlords looking to improve their EPC ratings.

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Can you rent out a property with EPC rating E?

As mentioned previously, EPC band E is currently the minimum EPC rating across homes in the UK, so it is perfectly legal to rent out a property with a band E EPC rating.

However, if your buy to let does currently have a Band E EPC rating, it is important to start considering making improvements to your property for when the minimum EPC rating increases to Band C for rented accommodation.

Improving your buy to let property’s energy efficiency may not be cheap, and in some cases, may require a full or partial retrofitting – which can be costly.

But there are ways to finance these improvements so that the cost is more manageable. On top of this, it can allow you to continue to earn rental income from your property.

This is where using EPC improvement finance could help. Working with a specialist finance broker can get you access to lenders who can offer you deals you otherwise may not have access to without the aid of a broker.

Click here to send an enquiry about EPC finance, or you can give us a call on 0117 959 5094 for a no-obligation discussion with one of our team.

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How do I increase my EPC rating?

To improve your EPC rating as a landlord and make your property more attractive to tenants, you can take these steps:

Insulate the walls, roof, and floors of your property.
Upgrade your heating system.
Install double-glazed windows.
Use energy-efficient light bulbs.
Install renewable energy sources.

Conduct regular maintenance checks.

Implementing these measures is a great way to increase your property’s energy efficiency and improve your EPC rating.

If you’re unsure how to fund these improvements, we work with lenders who offer specialist finance products tailored to landlords looking to improve their EPC ratings.

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EPC rating & Grade II-listed buildings

If you own an older or grade II-listed building, it may be more difficult to make EPC improvements to your property.

Older buildings tend to have less energy-efficient structures and, therefore, may need more improvements to get up to a band C EPC rating.

As well as this, grade II-listed buildings have specific legislation stopping certain improvements on them to preserve their historical value.

With this additional obstacle for landlords to preserve their buy to lets, it’s likely that many landlords will decide to sell these types of properties if the improvements cost too much.

In the case that buildings like this become unrentable without significant improvements, there could be an increase in these properties becoming available for homebuyers or invested in by experienced portfolio landlords who have access to the correct financing to make such improvements.

How we can help with your EPC rating loan

At Clifton Private Finance, we can facilitate refurbishment finance via a number of specialist lenders across the entire short-term market – loans of this kind are typically only available from private and specialist lenders. Without a broker, they can be difficult to approach directly. We can ensure you get to the right lender for your property project and get the best possible rates.

With our expertise and depth of knowledge, we can find you an appropriate lender with favourable rates.

Call us on 0117 959 5094 or click here to make an online enquiry with us.