Demand for bridging finance set to surge to meet April EPC deadline

The bridging finance market could see a flurry of enquiries as the latest minimum energy-efficiency standards deadline looms on the horizon.

Landlords struggling to secure funds to bring new properties up to minimum EPC ratings could look to bridging finance as a solution.

Since 1st April 2018, landlords cannot let non-domestic properties to new tenants — or renew or extend a tenancy agreement with existing tenants — if they have an EPC rating below E, unless they have a valid exemption in place.

From 1st April 2023, landlords will not be able to continue to let out non-domestic properties with an EPC rating of F or G to new or existing tenants.

Unless they have a valid exemption, landlords that don’t comply could end up forking out up to £5,000 per property in fines, or up to 10% of the rateable value of the property. 

The minimum standards will apply to rented properties within mixed-use buildings, although the triggers could differ depending on whether certain units are domestic or non-domestic.

More guidance on the minimum EPC ratings for non-domestic properties can be found here.

While some lenders won’t consider lending on properties that fall below the EPC E rating, specialist lender Greenfield Mortgages highlighted that a bridging loan could help the borrower buy a property and carry out the necessary work before exiting onto a long-term BTL mortgage.

“I believe we’ll see more investors looking for alternative methods of finance,” said Richard Keen, national account manager at Greenfield Mortgages. 

“Landlords can often find themselves facing a chicken-and-egg situation; they need funds to bring a property up to the minimum standards, but they can’t get the funds until the standards are met.”

The latest Bridging Trends report found that bridging loan transactions returned to pre-pandemic levels in 2022, a 14% increase on the previous year.

Dale Jannels, managing director at Impact Specialist Finance, expects the increase in unregulated refinance to continue as more landlords realise that EPC regulations aren’t going away.

With the government proposing for domestic properties to be upgraded to EPC band C for new tenants by 2025, and for all tenancies from 2028, Richard agrees this will be a growing trend. 

“Time is often of the essence when it comes to arranging finance, so it’s worth knowing that a bridging loan can be arranged quickly and the process is much easier compared with other more traditional ways of borrowing,” added Richard.

Landlords do not need an EPC if their non-domestic property is:

  • listed or officially protected and the minimum energy-performance requirements would unacceptably alter it
  • a temporary building only going to be used for two years or less
  • used as a place of worship or for other religious activities
  • an industrial site, workshop or non-residential agricultural building that doesn’t use much energy
  • a detached building with a total floor space under 50 square metres
  • due to be demolished by the seller or landlord and they have all the relevant planning and conservation consents

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