New EPC Buy to Let Requirements - One year to go… Are You Ready?

As of 1st April 2020, all buy to let properties will need to have a minimum Energy Performance Certificate (EPC) rating of E, regardless of when the tenancy started. With financial penalties for landlords who do not meet these requirements, are you prepared?

What is the EPC?
The Energy Performance Certificate is a legal requirement for all property sold in the UK (subject to a few exceptions, for example, buildings to be demolished).
Domestic Energy Assessors will rate each property and provide a report.

The report displays information on the property’s energy use, a rating of its energy efficiency and typical energy costs. The ratings go from A - the most energy-efficient, to G - the least.
The owner of the property is required by the regulation to provide buyers or tenants with this information.

What do the new changes mean to you?
On the 1st April 2018, new legislation was put in place to prevent domestic properties with the lowest ratings, of F and G, being rented.

Your rental properties must have a minimum EPC rating of at least E by the 1st April 2020, and if you fail to comply to you may face a fine.

If your buy to let property is below the minimum rating requirement, you are required to spend up to £3,500 to bring the property up to a minimum of an E rating. If you cannot bring your property up to the minimum requirement, you will be required to spend up to £3,500 and then register for an exemption on the PRS Exemption Register.

This applies to all tenancies, regardless of when the lease started.

How can I improve my property?
On the property’s EPC Certificate, it will state your property’s rating. If it is an F or a G, there will be a list of ways to improve your property. Along with the list of ways to improve your property, they will also supply you with a potential cost for each improvement.

How can I bring my property up to standard?
One of our lenders offers a refurbishment to let product. The initial stage is a bridging product which provides you with the funds to do the necessary work to bring the property up to a suitable standard and after an agreed initial period, it moves the mortgage onto a buy to let product without the need to remortgage.

How does the refurbishment to let product work in practice?
If you are looking to purchase a property with an EPC rating of F or G, the lender will allow you to secure the property via the initial part of the product - a bridging product.

This bridging loan will allow you to complete the necessary work to bring the property up to to a lettable standard. Please be aware that the lender will only give you finance to secure the property, they will not lend the money to improve the property.

Once the works have been completed (this may have taken you 1, 3 or even 6 months) the lender will then offer you to exit from the bridging loan onto one of their buy to let products.

Please see an example below;

Retained interest: you can either pay the interest monthly or add it to the loan

Monthly interest rate: 0.49%

Interest amount: £2,237.16

Gross loan amount: £153,682.16

Net loan amount: £150,000.00

Term / No. of months to complete works: 3

Loan to value: 51.23%

Open market value: £300,000.00

Property use: Standard

Valuation fee (Inc. VAT): £610.00 Includes revaluation and BTL assessment fee

Arrangement fee: £1,125.00 (Added to loan)

Telegraphic transfer fee: £25.00 (Added to loan)

Assessment fee: £295.00 (Added to loan)

Exit from the bridge (Rates correct at time of publishing):

Option 1:
2 year fixed rate @ 2.99%*
1.5% product fee, this can be added to the loan
Maximum 75% loan to value

Option 2:
5 year fixed rate @ 3.49%**
1.5% product fee, this can be added to the loan
Maximum 75% loan to value

What are the requirements for this product?
For the bridging finance, the property will need to have a minimum loan amount of £50,000. HMO property requires a minimum value of £100,000 and £250,000 in London. The maximum loan to value is 75%, with the rates starting from 0.49% per month.

For the buy to let product, the lenders minimum loan amount is £25,001, with the minimum property value being £50,000 and £150,000 in London. HMO property requires a minimum property value of £100,00 and £250,000 in London. The maximum loan to value is 80%, with their rates starting from 2.99%.

Who is the product ideal for?

• Properties needing work to meet the minimum EPC rating, such as a boiler replacement
• Properties purchased at auction that require light refurbishment to be acceptable for mortgage purposes
• Available to individuals and SPV Limited companies

If you are looking for a way to improve your property, to meet the minimum EPC ratings or for general light refurbishment, this product could be perfect for you! If you would like to find out more please email me on cpotter@mortgagesforbusiness.co.uk call me on 01732 471648 or 07814072193

The small print

*Rate correct at time of publishing. Fixed rate at 2.99% for 2 years reverting to lender’s LIBOR + 4.67% for individual applicants and lender’s LIBOR + 5.18% for Limited Company applicants (Lender’s LIBOR currently 0.85%). Maximum Loan to Value: 75%. Maximum Loan: £750,000. Repayment Options: Interest only or capital & interest repayment. Early Repayment Charges: 4% of the amount being repaid until the end of year 1, then 3% of the amount being repaid until the end of year 2. Income Requirement: No requirement. Lender Arrangement Fee: 2%. Standard valuation fee: Apply. Legal fees: Apply.
** Rate correct at time of publishing. Fixed rate at 3.49% for 5 years reverting to lender’s LIBOR +5.18% for Individuals and Limited Company applicants (Lender’s LIBOR currently 0.85%). Maximum Loan to Value: 75%. Maximum Loan: £750,000. Repayment Options: Interest only or capital & interest repayment. Early Repayment Charges: 4% of the amount being repaid until the end of year 2, then 3% of the amount being repaid until the end of year 4, then 2% of the amount being repaid until the end of year 5 from draw down. Income Requirement: No requirement. Lender Arrangement Fee: 2%. Standard valuation fee: Apply. Legal fees: Apply.

30th April 2019