Landlords who are currently seeking a five-year fixed rate BTL mortgage on a property with an EPC rating below band C could be turned down before net zero deadlines hit.
That’s because a new tenancy agreement could start after the planned 2028 deadline but within the five-year mortgage deal term – potentially leaving lenders exposed to regulatory risk.
Cotality’s research reveals that lenders are already considering adapting lending criteria in anticipation of upcoming EPC regulations and that those landlords with less efficient properties will be at a disadvantage.
Government legislation for England and Wales is set to enforce a minimum energy performance certificate rating of band C on all properties starting a new private rental tenancy agreement from 2028 and for all private rented homes from 2030. Scotland is currently consulting on similar changes, but with a longer lead time.
Cotality found evidence that some lenders are laying the groundwork to ensure they limit their own exposure to ‘net zero risk’ when approving new loans.
Others plan to integrate more dynamic data sources for new buy-to-let lending and refinance when assessing property-level environmental risks and energy performance.
These potential sources include smart meter data detailing actual energy consumption patterns, half-hourly electricity usage and pricing data (available to suppliers and aggregators with consent), weather and flooding data from the Environment Agency and the Met Office, satellite and aerial imagery for monitoring land movement and surface water, and the government EPC database.
Lenders and valuation firms warn that this could lead to intense competition to lend against EPC band A, B and C private rented homes within one or two years.
Mark Blackwell, chief operating officer at Cotality UK, says: “Meeting the challenge of net zero is not straightforward, and it will require the co-operation of all parts of the market to achieve it in such a short time.”
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