Campaigners are urging the Government to scrap proposals to make landlords pay up to £10,000 to improve the energy efficiency of their rental homes.

National Residential Landlords Association stated that landlords are not expected to take on the cost of buy-to -let properties in the manner that the Government suggests.

NRLA stated in an official statement that plans are based on the’misguided assumption’ that all landlords were property tycoons who have deep pockets.

By 2025, the Government is planning for all new rental properties to have an Energy Performance Certificate rating of C or above

The Government plans to require all rental properties that are built after 2025 to be equipped with an Energy Performance Certificate Rating of C or higher by 2025.

A consultation closed January and the Government recommended that, starting 2025 when a new tenant agreement is signed by the Government, the property must have an Energy Performance Certificate rating C or higher. 

Every rental property will have to comply with the new standard starting in 2028.

The Government has suggested that, in meeting these targets, landlords should be expected to pay up to £10,000 to make the necessary improvements.

However, the NRLA claimed that this cap is not appropriate because of differences in property and rental value across the country.

It follows research from NRLA that showed private landlords making an average net income from property of less than £4,500 a year. You can scroll down for further information on how the figure was calculated.

National Residential Landlords Association calls for the contribution that landlords are expected to make to the average rents of any area, also known as broad rental markets. This is based on calculations by the Valuation Office Agency.

Under the NRLA’s proposals, this would mean the amount a landlord would need to contribute would gradually taper from £5,000 to £10,000, taking into account different rental values – and by implication, property values – across the country.

Reduced VAT and Council Tax 

The NRLA also calls for a set of fiscal measures that will support property investments.

They should be inclusive of the establishment of a decarbonization tax allowance. This would allow VAT to not be applied for energy efficiency or low carbon work.

It also stated that no council tax should be levied on energy improvements to vacant rental properties.

Ben Beadle of the National Residential Landlords Association stated: “We want as many energy-efficient rental properties as possible in this sector.

“Besides the benefits to tenants, upgrades to rental properties make them attractive to potential tenants.

But he said that the Government’s plans for the sector were not satisfactory.

“They believe landlords are capable of spending unlimited money. They don’t realize the real value of rental properties and the differences in their property prices across the country.

“Ministers must have a more strategic approach and a financial plan if they want to achieve their lofty goals.”

Improvements made to rental properties ensure they become more attractive to prospective tenants

Tenants will be attracted to properties with improvements.

David Reed, of Richmond estate agents Antony Roberts, said: ‘We all want to see improvements to energy efficiency but If these proposals come to fruition, there’ll be a rush of landlords with property in vast swathes of suburbs – where older, less efficient properties make up a greater proportion of the stock – selling rather than incurring what could be considerable costs in retaining an investment in property.

“With yields that are so low, return barely meets costs,” especially since the former have grown in recent years directly (Tenant Fees Act, electrical regulations), or indirectly (unable-to-offset mortgage interest).

Tenants are drawn to charming, converted period flats within easy reach of work. EPC ratings and efficiency may not be a primary criteria. However, attractive accommodation and location will win out. Tenant demand is not being met by enough modern, efficient properties.

The private rental industry needs to have a supply of high quality properties. Many landlords own one or two rental properties. Recent changes have already caused discontent among many, and long-term plans for the market are in doubt. If they leave, the effect on tenants will be hard felt – a further restriction of supply giving more upward pressure on rental and lack of choice.

“Hopefully, consideration will be given where there are no simple-fixes or realistic programs of improvement to reach grade C or higher.

How much do landlords make? 

Private landlords make an average net income from property of less than £4,500 a year, according to the The National Residential Landlords Association.

The NRLA came up with this figure by following these steps: 

The English Private Landlord survey said that the average – median – gross rental income for a landlord before tax and other deductions is £15,000. 

 Average costs for landlords would be:

– Repair and replacement of furnishings – based on the previous tax exemption for 10% of annual rent (£1,500)

– Cost of a gas safety certificate (average £80 required annually – checkatrade average)

– Electrical safety check (average £265 performed every 5 years. £53 annually – checkatrade average)

– Deposit protection (£13 from TDS)

– Tenant referencing cost (for two tenants £49 NRLA tenant referencing)

– Interest-only mortgage for the average UK property (£250,000) with a 20% deposit (cheapest available £6,096 annual)

– Insurance (£531.15 for building and contents insurance from Hamilton Fraser using average floor space for PRS property https://www.statista.com/statistics/292206/average-floor-area-size-of-dwellings-in-england-by-tenure/)

– Agency fees (£1200 based on 8% agency fees)

The NRLA calculated the average renter of a house rented to a couple using an interest-only loan and assumed that tenants moved annually.

Total gross rental income – £15,000

Repair and replacement costs – £1,500

Tenancy management costs – £726.15 (includes average cost of insurance, gas safety certificates, 1/5 of the EICR cost, deposit protection and tenant referencing)

Agency fees – £1,200

Total deductions before tax and mortgage costs – £11,573.85

Amount that can be taxed – £2,314.77 (£11,573.85 x 0.20)

Tax after mortgage interest relief accounted for – £1,095.57 (£2,314.77 – (£6,096.00 mortgage costs x 0.20)

Remaining balance after Tax – £10,478.28 (£11,573.85 – £1,095.57)

Mortgage costs – £6,096.00 (based on cheapest available 80% Loan to Value mortgage on the average property in the UK of £250,000)

Remaining balance after all average costs deducted – £4,382.28 (£10,478.28 – £6,096.00)