Low EPC rating is stopping my buy to let mortgage plans
If you have a low EPC rating then getting a conventional buy to let mortgage is nearly impossible.
What is a low EPC rating? It’s the bracket your property falls under into terms environmentally friendly energy consumption. And, Mortgage Lenders and their Solicitors police mortgage transactions to make sure they are hitting the legal minimum EPC rating of status ‘E’ for buy to lets.
If you have a low EPC rating such as ‘F’ and ‘G’ then buy to let mortgage applicants are destined to fail.
How do I improve my low EPC rating to get a mortgage?
As a buy to let landlord you may think a new kitchen and bathroom normally does the trick – sure it will make the property more lettable but is unlikely to contribute much towards a low EPC rating. The dreaded words ‘replacement Combi boiler’ and ‘double glazing’ are more likely to hit the spot and transform your low EPC rating to an acceptable level to let.
If I can’t get a mortgage on a low EPC rating should I move onto to buying a different property?
Maybe; but where there is turmoil in a market caused by new legislation often the most successful are those who think outside the box and innovate, and there’s where professional Mortgage Brokers, such as Niche Advice come in.
Let me paint a picture; there is an increasing number of low EPC rated properties on the market as it puts inexperienced Landlords off. Sure not everyone has a deep pit to fund essential repairs – I get it – but if you got the money back within short timeframe – and also have the upside of accelerated equity growth then where’s the downside?
If I was to say we have access to a ‘low EPC finance product’ that can fund the purchase with a guaranteed second offer to release future money to pay back the cost of turning the low EPC rating into a ‘pass’ then would you be interested?
Low EPC rated finance product – How does it work?
Example: A low EPC rated property is on the market for £200,000. It currently has a low EPC rating of ‘F’. It’s on sale at auction and the purchaser, Marianne, is confident of picking it up. She knows with a new boiler and central heating the property will flip into the ‘E’ category. It will then be much more marketable. In fact, like any good professional landlord would, she has done her research and knows the value will then be circa £250,000. A cool £50,000 turnover.
The Low EPC rated finance product will provide an initial lend of £150,000 (75% of the purchase price). The new boiler and central heating will cost £4,000.
Outlay £25,000 deposit plus £4,000 to change the low EPC rating into an ‘E’ rating. Marianne just about has this at her disposal so is willing to tie-up her cash for a short while on the understanding she will get it back out otherwise her future projects will have to be put on hold.
The beauty of the Low EPC rated finance product is a second mortgage offer is underwritten at the same time as the initial advance. It has a retention to repay the cost of the works, and incredibly works off 80% of the end value.
That’s right potentially Marianne could get £200,000 (80% of £250,000) out at the end to clear the initial loan used to tidy up the low EPC rating (£150,000), the costs needed to transform the property from a low EPC rating (£4,000), and return her deposit (£25,000) with money to spare to pay stamp duty and legal costs.
Furthermore, the end finance is a conventional buy to let mortgage so enjoys competitive terms.
So my advice would be to do the math and buck the trend. Broaden your horizons to low rated EPC buy to let properties – after all one man’s loss is another man’s gain!
Niche Advice is a Mortgage Broker and works with professional landlords offering practical advice on growing their portfolios such as acquiring low EPC rated properties.
Author: Richard Stokes
Richard Stokes is a partner at Niche Advice who are whole of the market Independent Finance Brokers In London. His role is very much focused on on Mortgage and Insurance products.