MEES & Mortgage Renewals:

Private landlords hoping to fix their mortgage rate ahead of any further increases in bank base rates, and those who rushed-in to buy using soon to expire two-year fixed rates to avoid the new 3% surcharge back in April 2016, could find their plans scuppered by the new Minimum Energy Efficiency Standards (MEES).

The regulations, which are due to take affect from April 1, 2018, and according to Property Master, the digital start up that uses algorithms to match the requirements of individual private landlords against the entire buy-to-let mortgage market, they could prevent landlords getting mortgage renewals.

The new MEES rules, set to come into effect in less than six weeks’ time, will force landlords to ensure their entire rental properties are in line with the new standards.  This will require their properties having an energy rating of at least an E.  Failure to comply with these new rules will mean that the property will be illegal to rent out on a new tenancy, and this could affect property and property portfolio valuations for mortgage renewal purposes.

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“Lenders granting new finance deals will typically require properties to be revalued and we should prepare for value to be affected by fears some landlords will encounter void or empty periods as they rush to upgrade their properties or that some properties will no longer be able to generate a rental income because the landlord has not made or put in place plans to raise a property’s energy rating,” said Angus Stewart, Property Master’s Chief Executive.

Mr Stewart continues:

“This could be a particular problem for portfolio landlords as they will need to ensure all their rental properties comply with the MEES rules even if they are not seeking to remortgage every property they have.  Having just one property with a below standard MEES rating could prove to be a problem for some landlords looking for a new finance deal.  Landlords who have a fixed rate which is soon to expire or who just want to get a good deal ahead of any forecast bank base rate cannot risk ignoring the April MEES deadline.”

Landlords failing to comply with the new MEES rules could potentially also face substantial financial penalties in addition to potential void or empty periods.  The penalty for renting out a property on a new or renewal tenancy for any period of fewer than three months will be in breach of the MEES Regulations will be equivalent to 10% of the property’s rateable value.

The fine is subject to a minimum penalty of £5,000 and a maximum of £50,000. After three months, the penalty rises to 20% of the rateable value, with a minimum penalty of £10,000 and a maximum of £150,000.

These new rules will apply to new tenancies and to tenancy renewals and landlords will be required to ensure compliance before the lease is granted or renewed.

An estimated 20 per cent of non-domestic properties are thought to be in the soon to be illegal ‘F’ and ‘G’ energy efficiency rating brackets.  Works that may improve the rating include upgrading the boiler and improving insulation but in some cases improvements to the fabric of the building may be necessary, which could be costly.  There are a limited number of exemptions to the MEES rules, for example, if consent to upgrade the property is refused by a third party such as a local authority.

©LandlordZONE® – legal content applies primarily to England and is not a definitive statement of the law, always seek professional advice.

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