If things continue like this, privately rented houses will not reach the minimum energy certificate class C until 2042, more than a decade later than the deadline set by the government.

While this is later than the current 2030 target, improvements will be implemented faster than in 2016, when Hamptons predicted it would take 89 years to upgrade homes.

Last week, it was announced that Labour would reinstate mandatory targets to improve the energy efficiency of privately rented homes. The previous Conservative government had previously scrapped the target that privately rented homes would have to be at least energy class C by 2028.

Hamptons said the faster energy saving measures were partly due to landlords trying to meet the Conservative government’s original deadline.

So far this year, Hamptons has found that 39% of rental property EPC assessments carried out have resulted in the property moving up to a higher category. While this is above the long-term average, the rate of improvement is slower than in the years prior to 2018, when the requirement to achieve a minimum EPC rating was introduced.

To meet the proposed 2030 target, around 340,000 rental homes will need to be upgraded each year by the deadline, achieving at least a C rating. Around 115,000 homes will need sufficient improvements this year to achieve an EPC rating of C. This means the rate of upgrades will need to triple each year by 2030.

Most houses have been brought up to minimum standards

Around 55% of privately rented homes that received a new energy performance certificate this year achieved a rating of C or better, compared with 48% of owner-occupied homes.

Most of these higher ratings affected rental apartments that were downgraded from D to C, as half of the apartments that had previously been rated D were later given a C rating.

29% of homes that had an EPC rating of C later achieved a rating of C or higher. Only 9% of homes that previously had a rating of C later achieved a rating of B or higher.

Changed rules for landlords

Aneisha Beveridge, head of research at Hamptons, said: “Successive changes to the proposed energy efficiency regulations have shifted targets for landlords, some of whom face costs that can run into the tens of thousands of pounds. Despite this, many investors have continued to improve the energy efficiency of their rental properties and we are currently on track for 100% of rental properties where EPC air conditioning is viable to achieve this rating within a generation.

“To meet the Government’s 2030 target, we will need to see as many homes undergo energy renovations over the next five years as we have seen over the last 30 years. The requirement that all rental properties must have an EPC AC rating by 2030 is achievable, but landlords need sufficient time and resources to meet it. It is important that landlords are given full clarity on this target this year.”

Higher returns on houses with lower energy certificates

According to data from energy performance certificates carried out so far this year, 3-4% of rental properties will fail to achieve an EPC rating of A to C. However, this is more than the 7% of properties expected to fail to achieve this level before the changes to the EPC methodology in mid-2022.

The new rating reduced the assumed environmental impact of electrical appliances and, in some cases, resulted in homes heated by electricity being placed in higher categories than those heated by gas. It also means that EPC ratings based on assessments carried out before 2022 may change.

Hamptons found that homes with lower EPC ratings and properties that do not achieve at least an EPC rating of C tend to be older, cheaper and likely to be located in the north of England.

This explains why the average EPC D rated home will deliver a gross yield of 7.6% in 2024, the company said, exceeding the 5.5% yield of the average EPC A rated home, and the latter homes are typically new builds.

Houses with an EPC rating of E achieved the highest average returns of 7.9%.

Hamptons said landlords of these homes would reach the spending cap ahead of the proposed target. It said the value of these properties and the way they were built meant that a Grade C EPC rating was often “unviable” and in some cases “unattainable”.

The average annual running costs of a rental property rated EPC D (£1,482) are significantly lower, while the running costs of a property rated C (£983) are lower.

Between EPC ratings C and B this drops to £711, but average running costs rise again to £1,046 for A-rated homes.

Rents continue to rise

Hamptons data showed the average rent for a newly let property in the UK rose 5.7% year-on-year to £1,354. The company said this was the 12th highest increase in rents in the UK.th Month in a row in which the annual growth rate did not increase.

The company said this was helped by double-digit growth in the North, where rents rose 10.3% to an average of £942.

The slowest rental growth was recorded in Outer London, where there was a 2.9% increase to an average rent of £2,203 per month.

Rent growth has slowed for larger properties but accelerated for smaller rentals. Hamptons found that the average rent for a one-bedroom apartment rose to £1,092 a month in July, up 7.6% on the same period last year.

Meanwhile, the average rent for a three-bedroom apartment increased by 5.2% and the average rent for a four-bedroom apartment increased by 3.8%. According to Hamptons, an average one-bedroom property now costs the same as an average two-bedroom property did in September 2022.

Beveridge added: “Rental growth continues to outpace inflation, although the pace of growth has moderated over the past year. However, there are also signs that the strong inventory increases seen since 2023 are easing. In January, inventory was up 34% year-on-year, now it is up 22%.

“A decline in the inventory level is likely to stimulate rental growth again, especially given the fact that in the long term there are about a third fewer rental apartments than there were five years ago.”

This article first appeared on YourMoney.com‘s sister site, Mortgage solutionsRead: Rental housing will miss 2030 EPC deadline at current rate – Hamptons