Property with low EPC
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Energy efficiency is important - and old and inefficient buildings not only waste energy, but they can be difficult to finance too.
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Property with low EPC
Solving the problems of funding for complex cases - including energy-hungry buy to lets
New regulations for private landlords mean you could be in for a hefty fine if a property you rent out has an EPC rating of E or lower. What’s more, it can be impossible to get a mortgage for affected properties - without help from Rangewell.
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Energy efficiency is important, and old and inefficient buildings waste huge amounts of energy.
If you are a homeowner, you will be prompted to improve your energy efficiency because of the big bills that you face - but in the rental sector, things are rather different.
An energy inefficient property is considered ‘substandard’ accommodation, as it places means much higher heating costs for the tenant. It is your responsibility as a landlord to ensure your tenants are comfortable and are not paying over the odds on their energy bills.
But you may need to do more than bring in extra heaters for the winter. It is a legal requirement for all rented homes in the UK to have a valid Energy Performance Certificate (EPC). An EPC survey measures the energy efficiency and typical energy use of your property, giving it a rating from A (most efficient) to G (least efficient). It then gives suggestions of how to improve your rating, such as installing measures like loft insulation.
From 1st April 2018, a change of legislation meant that any properties rented out in the private sector must have a minimum energy rating of E on their EPC. The regulations came into force for new lets and renewals of tenancies and will be extended to all existing tenancies on 1st April 2020. It’s now illegal to rent a property that breaches the requirement for a minimum E rating,
The standards will be applied to all commercial rented property from 1 April 2023.
If there is a breach in this legislation and the property has a low EPC rating then, as the landlord, you could have to pay a £4000 fine. What’s more, you may be prevented from renting out the property at all, until improvements are made.
What does an EPC rating mean?
The EPC survey is carried out by a qualified energy surveyor. The aim is to identify how energy efficient the property is. The level of carbon dioxide emissions is also identified. The energy efficiency of a property is graded on the EPC, with A being the highest grade and G being the lowest. If a property has a rating of F or G, it does not meet with the new Minimum Energy Efficiency Standards which became law in April 2018.
Buying a property to let
If you are buying a property to let, it has become vital to ensure that the property has a good Energy Performance Certificate (EPC) rating.
The same applies if you already own a property that you rent out and you want to secure a further mortgage on. Regulations that were introduced earlier this year make it illegal to instigate or renew a lease on a property that has an EPC rating of F or G if you are buying to let.
The new regulations will also affect a mortgage application if you have a portfolio of properties and some of them have an F or G EPC rating.
If you are thinking of investing in property, or need to secure a mortgage against a property you already own, it’s vital to understand the importance of EPC ratings and the new regulations.
What about listed buildings?
Many landlords believe that listed buildings will be exempt from the new standards.
The truth is that some listed buildings, or properties that are within a conservation area, are not required to have an EPC in place. If you are buying a property to let, or already own a property that you are letting out, it’s your responsibility to know whether an EPC is required or not.
An EPC may not be required for a listed building, or for conservation area properties when complying with energy efficiency standards would affect the appearance of a property, such as the installation of new windows.
Why an EPC survey is vital
It’s a legal requirement to have an EPC for any property that is being sold, newly rented out or newly built.
The only way to know if your property has a low EPC rating is to have a full energy performance survey carried out. The energy surveyor will inspect the property, provide a rating and provide advice on improving the level of energy efficiency.
If you are renting out a property, a high level of energy efficiency will make it more attractive to prospective tenants.
You may also find it more difficult to secure a mortgage for an additional property if you already have properties in your portfolio that have a low EPC rating. If you have any properties that you are renting out with an EPC rating of F or G, you may find that this has an makes it hard to get additional mortgages on the properties, or for a mortgage to purchase another property.
A low EPC rating can prevent you from getting a mortgage for a property that you wish to buy, or one that you already own.
It is worth arranging an EPC inspection and avoiding a potentially hefty fine and other liabilities, or being unable to let out your property altogether. Prices start at around £35, although it varies greatly depending on where you are, as well as the size and complexity of the building.
Finding solutions to fund low EPC properties
Having a low EPC need not be a problem with Rangewell's help. Most properties in the UK achieve at least an E rating, and the actual UK average is a D. If you have a property that falls below these ratings, it could be relatively simple to improve the situation.
Some simple loft insulation, efficient lighting and draught-proofing will help immensely. There will, of course, be some properties where an E is very difficult to achieve, and with these, there may be significant costs involved in doing so.
At Rangewell we can provide lending solutions that will fund remedial works. If the work is extensive, this could include a secured loan, with the security provided by the property itself.
If you are ready to buy a property with a low EPC
Buying a property with a low EPC rating may appear to be more difficult, because of the challenges of finding a suitable mortgage.
However, there may be potential for the challenge of a low EPC to be turned into an opportunity.
It may be possible to use the low EPC rating of a building as a negotiating point, reducing the price to acquire it, and potentially allowing you to secure a property at a bargain price.
A programme of improvements that will allow the property to be brought up to the required standard will have to be carried out and budgeted for.
Many of the mainstream lenders are currently reluctant to help. However, at Rangewell we are fully aware of the challenges and we know the lenders who may be able to help.
If lenders are prepared to agree to advance a mortgage they will normally require evidence of a programme of energy improvement in place. There are specialist businesses that can help, providing costed improvement proposals which can form part of a mortgage application.
At Rangewell, we can find lenders able to offer a variety of property finance products that will help.
A Bridging Loan
A Bridging Loan is a short-term loan secured against property. It’s called a bridging loan because it is designed to bridge a short-term funding gap. Bridging loans are usually repaid quickly, either by the sale of the property or by another finance product designed for the longer term, such as a mortgage.
One way of using a bridging loan is to acquire a property with issues such as a low EPC, overcomes the problems with remedial work and then refinance the property with a mortgage once the work is done. Lenders offering bridging finance will carry out detailed checks and apply conservative lending criteria but are able to make rapid decisions because they can work without the bureaucracy that slows down many traditional lenders
A Commercial Mortgage is a loan secured on property and works much like a residential mortgage. If you want to buy a property to let out or develop as an investment, it can provide the level of funding you need.
If you are buying residential property on a commercial basis to let out, a low EPC could affect your application. We can help support negotiations which lenders which will overcome the reluctance to lend.
Buy to let mortgages
Buy to let mortgages can be conditional on an acceptable EPC.
The conventional answer is that BTL lending is not available if the EPC rating is not acceptable.
However, at Rangewell, we can often find lenders offering solutions that will let you put remedial work in place for both residential and commercial property. This type of mortgage may need to be negotiated on an individual basis, and getting the support of Rangewell’s experts may be essential.
Development mortgages can present another way to overcome the challenges of a low EPC. Older houses bought for redevelopment may have particularly challenging energy consumption, and updating standards will be part of the refurbishment work.
By including costing for this side of the project it can be simple to demonstrate your understanding of the challenges - actually supporting your application for lending.
What about the costs?
The costs of any mortgage product will depend on the risk involved for lenders, and those lenders who are prepared to lend to buyers of a property with a low EPC will be fully aware of the increased risks.
This will be reflected in the cost of the mortgage product offered.
Costs will vary across lenders and according to the rating the property has.
Getting the help of the Rangewell team, with their ability to work across the entire lending market to secure the most attractive price for the funding you need, is essential.
Finding funding for a buy to let with low EPC
A buy to let landlord was offered a property in a town just outside London.
It was a house built in the early part of the 20th century and was in a good position close to the station, making it of obvious appeal to commuters.
However, the EPC was very low due to the single glazed windows, and a heating system that had not been updated in 50 years.
It was impossible for him to secure a buy to let mortgage as a result.
He approached Rangewell, and we found a lender who was prepared to make an offer of funding conditional on work being carried out.
Financial solutions from Rangewell for low EPC properties
At Rangewell, we can use our property finance expertise to support your business plans – and ensure that you have the financial solutions you need. We can help source business lenders who can provide specialised property funding, whatever the challenges you face.
Lenders will vary greatly in the arrangements they will offer.
Getting the most appropriate deal for your property is essential. Even a fraction of a percentage point can make a substantial difference to what you actually pay each month. It means that getting expert support to find the right deal is essential to save money.
At Rangewell, we help property owners - and would-be property owners - of all kinds find the finance they need. We cover the entire UK lending market, which means we can help you find the most cost-effective property finance for all property investment needs - and to help you make the most of your plans.
Our knowledge can not only help you secure the funding you need for your property letting business - it can save you a great deal of cash.
ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
REAL EXAMPLES OF WHAT WE CAN DO
Help arrange funding for a first-time landlord
Find the most competitive funding arrangement for period house
Find finance to allow a landlord to secure a large house close to a London university
Source funding to allow a landlord to build his property portfolio
Arrange funding based around a remortgage of a landlord’s existing property to allow him to buy another
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