EPCs Scotland: What are they, what do they mean for home owners and landlords, and what is the proposed legislation?

New legislation on Energy Performance Certificates is on its way – and here is what it could mean for property owners.

What is an EPC?

Energy Performance Certificates (EPCs) rate homes on energy efficiency from A (best) to G (worst). They estimate a property's likely fuel cost, energy use and carbon dioxide emissions.

Information is also provided on EPCs with measures which will supposedly improve the energy efficiency of the dwelling and an indication of the cost for each improvement.

Changes to legislation on EPCs in Scotland are due later this year (pic: Joe Giddens)

An EPC must be produced when a new building has been constructed; and when a building is to be sold or rented to a new tenant.

EPCs are valid for ten years, but, according to Knight Frank, a consultation document recently published by the Scottish Government set out its intention to align with the English system and to reduce the validity of EPCs from ten years to five.

How are EPCs carried out?

The EPC is produced using a UK Government calculation methodology called Standard Assessment Procedure (SAP).

SAP quantifies a dwelling’s performance in terms of: energy use per unit floor area; a fuel-cost-based energy efficiency rating (the SAP Rating); and emissions of CO2 (the Environmental Impact Rating)

SAP is used for new dwellings. For existing domestic buildings, the assessor usually does not have access to the full dataset required to undertake a full SAP calculation (such as technical details about the windows, or the individual layers that make up the walls). For this reason, a modified version of SAP is usually used for existing dwellings. This is called Reduced Data SAP (RdSAP).

What are the critics saying?

With the metric currently being modelled on running costs, a property heated by a gas boiler could achieve a better rating than the same type of dwelling heated by electric radiators because many fossil fuels, such as gas, have a much lower cost per kWh than electricity. This does not align with the net zero ambitions under the Scottish Government.

It means people investing in ‘greener’ heating systems are likely being marked down on their EPC despite paying to install a better system.

Some stakeholders have called for SAP and RdSAP to be substantially amended, or replaced entirely, and an alternative assessment methodology used. A major update to the SAP and RdSAP methodologies is under development by the UK Government at the moment.

What are the Scottish Government’s proposals on EPCs?

The Scottish Government has proposed to introduce regulations requiring all private rented sector (PRS) properties to reach a minimum standard equivalent to EPC rating C on a change of tenancy from 2025, with a backstop date of 2028 for all remaining PRS properties.

For all other owner occupiers, the proposals call for the C rating to be reached by 2033. The proposals are intended to reduce bills for tenants and stop leaky homes adding to emissions.

But the new vision is heavily caveated, with Government documents suggesting the targets are subject to “where it is technically feasible and cost-effective to do so”, with no detail on what that cost is.

What are the critics saying?

Scottish Greens co-leader Patrick Harvie has previously told MSPs the cost of ending Scotland’s contribution to climate change from buildings emissions will be more than £33 billion. The Scottish Government has only pledged £1.8 billion to transform the country’s buildings over the next decade.

There is a chance some buildings will never reach level C based on the current instructions on how to get there because of how they are built, property experts at Scottish Land & Estates have said. The group insists the Scottish Government needs to step away from this “one-size-fits-all” approach and have different targets for different style buildings such as Victorian-style cottages that are designed “to breathe” and require different insulation to new builds.

"Trying to retrofit old houses with modern methods will result in a lot of problems,” an SLE spokesperson said. Rural landlords insist they will need more time and financial support as there is a lack of solutions to insulate multiple older, off-grid buildings in a cost-effective way.

A large proportion of housing in rural areas is provided by estate owners on affordable rents. Critics of the proposals have said if these owners are not supported in their efforts to reach the new minimum standards, many may feel they have no choice but to remove their properties from the private rented sector. This would have a detrimental effect on the demand for housing in rural areas and significantly increase the burden on local authorities. The Scottish Government, however, has proposed ‘to introduce new tailored financial support based on loans for the Private Rented Sector’.”

When will the proposals likely be enforced?

No legislation is in place yet, despite the provisional dates having been announced. There is a Heat in Buildings Strategy, written in 2021, which outlines the Scottish Government’s proposals on EPCs mentioned above.

Legislation was drafted in 2019, but it was binned “because of the Covid pandemic” and has not yet been resurrected.

New legislation is due to be drafted “later this year”, which will then be consulted on with a view to inform the new Heat in Buildings Bill, which would include whatever ministers decide will be the new EPC regulation for property owners and landlords.

The Scottish Government previously said the new regulations would be ready by 2022, but they have been delayed.

What are the critics saying?

The delay in finalising legislation means there’s a risk landlords will sell their private lets or turn residential properties into holiday homes. Landlords with multiple properties have said this is the only solution to make the investment required to upgrade the buildings financially viable.

Property experts have said this could lead to even more of a shortage of affordable rent options in rural Scotland.

A spokeswoman at BMF Group, which owns some 70 homes for private let in Aberdeenshire at affordable rent, said the houses the company has sold in the past five years have gone to “wealthier buyers and retired couples” who end up “outpricing the locals”, which would not solve rural housing shortages.

What happens if you don’t meet the required standard?

Nothing has been written into legislation, so no official penalty plans are in place.

In previous draft legislation written by the Scottish Government, which will be replaced by new written plans in coming months, documents said local authorities could enforce fines where landlords let a property that does not meet minimum standards for a period of less than three months of up to £2,000. And where the standards aren’t met for three months or more, papers said the financial penalty could go up to, but not exceed £4,000.

Is there financial support to make the changes?

The Home Energy Scotland Grant and Loan Scheme provides grants of up to £7,500 for domestic owner occupiers to install zero direct emissions heating with an additional £7,500 available as an optional interest free loan.

The scheme also provides up to £7,500 in grant funding for "energy efficiency measures”, also with an additional £7,500 available as an optional interest free loan.

A £1,500 "rural uplift” to both the heating and energy efficiency grants is available for eligible properties to “recognise the increased costs in rural areas,” the Scottish Government said.

There is no Government funding available for private landlords. They can, however, apply for a loan through the Private Rented Sector Landlord Loan scheme, which is available for registered private sector landlords who are acting as an individual or a business that owns PRS property. The loan will only be given if the works can be carried out in 12 months and paid back within eight years. The funding will not be given for holiday or second homes.

Some figures for context:

In 2019, 62 per cent of homes in Scotland were owner-occupied, of which only 42 per cent were rated as EPC band C or better, according to the Scottish Household Condition Survey. A more recent survey was done in 2021, but it is likely to be less representative as it was highly impacted by Covid-19 given it was carried out by door knocking.

According to Rightmove analysis, based on the rate that homes are improving, it would take 43 years for all houses for sale in the UK through the property company to reach at least an EPC rating of C, and 25 years for flats for sale.

In the rental market, it would take 31 years for all houses for rent on Rightmove to reach at least an EPC rating of C, and 16 years for flats. A total of 33 per cent of all UK landlords with properties below an EPC rating of C plan to sell rather than improve them, up from one in five in 2022, the firm said. Some 61 per cent of landlords would not buy a rental property below an EPC rating C, up from 47 per cent in 2022

And 13 per cent of people looking to buy a property in the next 12 months say that its energy efficiency will be a major factor, and that rises to 19 per cent for renters.

What are the experts saying?

Rightmove’s research found the immediate cost benefits of improving a home’s energy efficiency is still the biggest driver for home-owners to consider making green changes, but more needs to be done to help people afford to make improvements.

The study said “affordability will remain a challenge unless the incentives are big enough”. Johan Svanstrom, Rightmove’s chief executive, said: “In the residential sector there are significant challenges to achieve greener homes at an adequate speed, not only the cost barriers to retrofit, but also a lack of knowledge on what’s best to do to a home and what it will yield.”

What about when you want to sell or buy a property?

It is becoming harder to get a mortgage on homes with poor ratings, property experts have said. Some banks already offer better terms on homes with high EPC ratings.

Rightmove research found a property moving from an F to a C rating could increase a property’s value by an average of an additional 15 per cent, or almost £56,000, when looking at the national average asking price.

Some tips from mortgage companies on how to improve your EPC rating:

Replace your light bulbs: Traditional incandescent light bulbs drain your electricity and replacing them with LEDs can save you significant amounts of energy. According to experts at frankgattolighting.com: “LEDs are as much as 90 per cent more effective than incandescent light bulbs, meaning they have a much longer lifespan and are less susceptible to faults.”

Increase your insulation: If your home has poorly insulated walls, then you could be losing massive amounts of heat, which is bad for the environment and your bank account. Adding an extra layer of insulation is one of the most obvious yet effective ways to improve your home’s energy efficiency. Don’t forget to also check that your roof is properly insulated as this can be a major source of heat loss.

Replace your boiler: Replacing your boiler can be expensive, but it could have a big impact on your EPC rating and reduce your home’s carbon footprint significantly. Modern boilers are much more efficient, meaning they use less energy and cost less to run.