Investing your money into a buy to let property can be an effective means of growing your wealth. Many turn to buy to let properties as a viable alternative to the stock market, largely due to the control buyers can exercise over their investment. However, despite this additional control, property is still an expensive investment, one often only possible with finance. Given the push towards a more environmentally conscious approach to most industries, property investors must also consider this angle when selecting an investment property. Many lenders offer a specific type of loan that hinges on certain environmental factors, which can be make or break for your next investment. One such loan is a buy to let EPC loan.

In this article, we will break down buy to let EPC loans, how they work, and how you can be eligible for one. Let’s get started.

What is an Energy Performance Certificate?

An Energy Performance Certificate (EPC) is a document that details a property’s energy efficiency. This energy efficiency takes several factors into account, including the presence of energy-efficient home improvements, such as solar panels, double-glazed windows, methods of heating, and so on. These factors give an idea of how much it will cost to heat the property, and what the property’s impact on the environment might be, culminating in an EPC rating. EPC ratings range from A to G, with A being the most cost-efficient to heat and with the least environmental impact. Conversely, a rating of G indicates the property will be relatively costly to heat, and will have the most impact on the environment.

What is a buy to let EPC loan?

Buy to let EPC loans are exactly that – a standard buy to let loan that uses a property’s EPC as a deciding factor. Loans of this nature are on the uptick, often used by banks and other such lenders for borrowers looking to make their next investment. EPC loans exist largely for two reasons; to encourage more environmentally conscious property investment, and to make better loans from a long-term perspective. After all, energy-efficient improvements, such as solar panels, efficient heating methods, and double glazing, add value to a property, making it a sounder investment for both the property investor and the EPC loan lender.

Also Read: How You Can Finance Uninhabitable Property Purchases?

How does a buy to let loan work?

A buy to let loan functions quite similarly to most other loans intended to fund the purchase of property, though it naturally has a limited use. Buy to let loans are exclusively for the purchase of property for use as rentals, either residential or commercial. As such, it is functionally a business-related loan, and investors should choose their property carefully in order to make a profit. The property buyer will still be expected to pay the usual fees and expenses, including a deposit on the property, Stamp Duty, any necessary refurbishments, and monthly loan repayments, though most buy to let loans offer interest-only payments. Given these costs, it can be easy to make a loss on a property with a buy to let loan without first ensuring the property’s profitability.

Buy to let EPC Loans

While buy to let EPC loans function in a very similar way to any other buy to let loan, it does have an additional environmental angle to be considered. Lenders of these loans will prioritise borrowers with an environmentally conscious investment in mind, such as the purchase of a property with a high EPC rating, over those that don’t. In fact, buy to let EPC loan lenders will often outright refuse borrowers that do not meet certain environmental criteria, limiting the use cases of this type of loan.

While this is partly due to the effort to promote greener investments, it is also a pragmatic choice. For instance, it is illegal to rent out a residential property with an EPC rating of G or below, and the property owner is obligated to make the necessary refurbishments up to the value of £3,500. Attempting to circumvent this requirement can result in legal penalties and fines. As this factor negatively affects a property’s profitability, and therefore, a borrower’s ability to make repayments, lenders are less likely to consider loans for energy-inefficient properties.

Am I eligible for a buy to let EPC loan?

In order to be eligible for a buy to let EPC loan, you must first meet a selection of eligibility criteria. These criteria are overwhelmingly the same as with any other buy to let loan or mortgage, including proof of identity, proof of income, a reliable credit history, and the property being considered habitable. Naturally, there can be some flexibility in these requirements depending on your chosen lender and what they offer.

However, as buy to let EPC loans aim to promote a greener approach to property investment, your chosen property must also meet the minimum EPC rating as specified by the government. As a private landlord of a residential property, the minimum EPC rating your property must have is E. Properties with a rating of G or below must be refurbished to meet the minimum rating before it can be rented. Failing to do so is likely to result in fines and potentially other legal penalties. If you intend to purchase a property with an EPC rating below E, buy to let EPC loan lenders are highly unlikely to approve your application, with a handful of exceptions. These exceptions include holiday lets, agricultural plots in excess of 2 acres, and a small building with a floor area of less than 50 square metres.

Wrapping up

Buy to let EPC loans are an increasingly common service offered by loan lenders. These loans aim to encourage a greener outlook when purchasing rental property, while also encouraging investments with better long-term potential. This initiative aspires to improve the rental property market, though some investors may find the new environmentally conscious to be an obstacle. If you are unsure whether your property is fit for rental under EPC guidelines, or you are unsure of your eligibility for a buy to let EPC loan, you should contact a professional for advice.