Homes with EPC ratings of D and E offer the highest yields in England and Wales, at 6.7pc and 7pc respectively, according to Hamptons estate agents.
The lowest yields are for homes with the highest ratings. A-rated properties have yields of 5.5pc, while B and C-rated properties offer investors 6.6pc and 6.7pc respectively.
David Fell, of Hamptons, says a lot of terraces across Northern England that offer yields of 8pc or more are rated D or E, with “fairly limited ability to improve them”.
“The requirement to spend £10,000 to achieve a C here will make things particularly difficult because £10,000 is often 10-15pc of their value,” he says. “Ultimately this will make things pretty tricky for new landlords given the importance of yield at higher interest rates.”
Many of the lowest rated homes are two-up, two-down terraces in Northern England that sell for less than £100,000. Although they offer high yields, they are typically some of the least energy efficient.
Fell says: “They’re often single skin – with no opportunity to add cavity wall insulation. The cost of energy improvements here is also a much larger chunk of the purchase price than it would be down south.”
Armstrong warns that some landlords would simply be unable to afford the upgrades needed.
“If money stays expensive over the next couple of years and you’re on a variable mortgage rate say at 7.5pc and then you’ve got to spend another five grand to improve the property, it’s an impossible financial situation for a landlord,” he says.
“You think to yourself, ‘I just need to get out of this.’ And that has to at some stage create some sort of crisis for the amount of people that are in private rented accommodation.”
Impact extends to commercial properties
Other property investors are also expected to take a financial hit that will drag down prices in the commercial sector.
New laws that came into force on April 1 ban landlords from renting offices with an energy efficiency rating of E or below.
The minimum E rating that came into force on Saturday has left around 8pc of all commercial stock obsolete, according to BNP Paribas Real Estate.
