Optimising Your Buy-to-Let for Energy Efficiency: A Guide for Landlords
Rising energy prices and the risks of climate change mean energy efficiency is more important today than ever. Here’s what landlords and property investors need to know about optimising their buy-to-lets for energy efficiency.
Why Optimise Your Buy-to-Let for Energy Efficiency?
Landlords have a lot on their plate in any case, so why should you consider optimising your buy to let for energy efficiency? Here are some very good reasons:
- Firstly, energy efficiency is good for the planet. Homes are a significant source of greenhouse gas emissions whether they are owner-occupied or rented.
- Energy efficiency is increasingly attractive to tenants. Tenants want homes that are warm and economical to run. It may make your property more lettable, more in demand and may even mean you can earn more rent.
- Energy efficiency can be financially rewarding for landlords. If tenants have lower energy bills they can pay the rent more easily.
- Energy efficiency measures are likely to offer additional benefits for landlords with HMOs, serviced accommodation or holiday lets where the landlord rather than the tenant pays the energy bills.
- Energy efficiency measures can preserve and even enhance the value of your property.
- It will ensure that you comply with the law. By law rental property must have an EPC rating of at least E. This could be reduced to C in the future.
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Energy Efficiency and New Buy-to-Let Investments
When considering a new buy to let property investment remember that the newer the property then, generally, the more energy-efficient it will be. A majority of new and recently built properties (since 2012) have an EPC rating of A or B. Only around two-fifths of older properties, on average, have an EPC of C or higher.
Also, flats and terraced properties are generally more energy-efficient than semi-detached houses which are themselves more energy-efficient than detached houses.
How to Optimise Your Buy-to-Let For Energy Efficiency
Energy efficiency improvements for a buy to let, or any other property, are best carried out as part of a long term plan.
To start with, you may need to obtain a current, new EPC or Energy Performance Certificate for your buy-to-let property. Valid EPCs must be produced when a tenancy is created. However, EPCs are valid for ten years only. If the EPC is still valid but you have carried out improvement works since it was issued it may be necessary to order a new EPC so you can confirm the current EPC status of your buy-to-let.
EPCs grade your property’s energy efficiency from A (most efficient) to G (least efficient).
If your buy-to-let has an EPC or has had one, but you do not have a copy to hand you can check this on the Find an Energy Certificate Service (England, Wales, Northern Ireland) or on the Scottish EPC Register for Scotland.
You can order a new EPC from one of the many home energy assessor services. It can cost as little as £70.
You might also consider a more comprehensive home energy audit or home energy assessment which goes into more detail than an EPC.
A standard EPC will report on the current energy efficiency of your property in areas such as insulation, heating and hot water systems and lighting. It will also make recommendations as to how the energy efficiency of your property might be improved and if a higher EPC rating might be possible as a result.
Ways to Optimise Your Buy-to-Let for Energy Efficiency
There are a number of ways to optimise your rental property for energy efficiency. Which are most appropriate will depend on your EPC or home energy audit. Bear in mind that your property may already have some of these energy-saving measures but may lack others either in part or in full. Depending on the nature of your property it may not always be possible to install all of these measures.
Here are some possibilities to consider:
- Improved insulation. There are a number of ways to improve insulation.
- Lofts should be insulated with a minimum of 270mm of loft insulation. Properties with lofts which were insulated some years ago may have less than this.
- Cavity walls should have cavity wall insulation. Only properties built since 1990 will have this from new.
- Floor insulation can be added either under suspended floors or over hard floors.
- Flat roofs are usually very energy inefficient. When they require replacement they can be made much more energy efficient with insulation, or perhaps replaced with a pitched roof.
- Simple draughtproofing and airtightness. This is one of the cheapest and most cost-effective ways to optimise a property for energy efficiency. Add draught excluding strips to and around doors, to letterboxes and also to gaps between the floor and skirting board etc. (Remember that properties also require adequate ventilation.)
- Windows and doors. While double glazing is pretty commonplace today triple glazing may also be considered. Secondary glazing can be added where double glazing is not possible.
- Heating and hot water. Energy efficiency can be improved by upgrading to a new more efficient gas combi boiler to provide heating and hot water. Or installing one where possible where a boiler is not presently installed. New heating controls and room thermostats can also maximise efficiency.
- TRVs or thermostatic radiator valves in each room are very cost-effective ways of improving energy efficiency.
Low carbon heating. Consideration could also be given to whether installing a heat pump would be effective.
Note: As EPC legislation currently standards an energy-efficient gas boiler will generally qualify for a better EPC rating even though it is not as energy efficient as a heat pump.
- Pipe insulation. Pipe insulation to water pipes can help save energy (in the case of hot water pipes) and also reduce the risk of burst pipes in winter.
- Lighting. LED lighting is a simple energy efficiency improvement.
- Appliances. If you provide any appliances in your buy-to-let then when buying or replacing them, aim to choose the most energy-efficient appliances. Energy efficiency ratings for appliances now range from A (most efficient) to G (least efficient) replacing the previous system.
- Microgeneration. Methods of microgeneration, such as solar PV panels, typically have a high initial cost and a low annual return on energy bills. However they might be beneficial to landlords who pay for the utility bills in a property, such as an HMO, holiday let or serviced accommodation.
The Cost of Energy Efficiency Improvements to Your Buy-to-Let
Paying for energy optimisation measures can be a tricky area for landlords and investors. The payback time for energy-saving measures can be long. Also, there is rarely a direct and clear relationship between the cost of energy efficiency optimisation and an obvious payback for landlords.
So planning energy efficiency improvements in advance can be one way to ensure they are not only energy-efficient but more cost-efficient as well.
A recent EPC will give an indication of what particular energy efficiency measures will cost and what they might save. This will give some idea of what energy efficiency measures give the best return for your budget.
Energy Efficiency and Tax
If you are undertaking a programme of renovation anyway, particularly when buying a new buy to let, it may be the case that energy-efficient materials will not cost any more than materials that are not designed to maximise energy efficiency. There may also be tax and VAT concessions on the more energy-efficient option. A zero VAT rate for heat pumps and solar panels for example was introduced this spring for a minimum of five years.
Capital improvements can’t be claimed as a tax deduction. However, repairs and replacements can be. So in some cases, energy efficiency work carried out at an opportune time can be regarded as a repair or replacement and so be a tax-deductible expense. There is some room for flexibility here. For example, if glazing requires repair you can replace single glazing with double glazing. If a broken boiler requires replacement it can be replaced with a more energy-efficient one and still be regarded as tax-deductible expense rather than a capital improvement.
If in doubt as to the tax treatment of energy optimisation measures do take professional advice.
Buy-to-Let Energy Efficiency Grants
In some cases, government grants are offered for energy efficiency improvements. These are sometimes available to buy-to-let landlords and sometimes only to owner-occupiers. In some cases, tenants may qualify for grants for energy-saving measures.
There is also a cap on the amount landlords are expected to pay towards energy efficiency upgrades that might be required by law on a buy-to-let.