Landlords face a £23bn bill to upgrade properties to meet the Government’s new green energy rules.
Owners will have to pay to upgrade their properties to meet a minimum Energy Performance Certificate rating of “band C”. The planned deadline for newly let properties is 2025. For all existing lets, the deadline will be 2028.
The new rules will affect the owners of more than three million rental homes, according to analysis by Outra, a research company. Of the 5.6 million rental properties in England and Wales, 59pc are currently rated EPC band D or below.
Official figures suggest the average cost of upgrades will be £7,646 per property. This means the collective cost for all private rented homes will be nearly £23bn over the next six years, Outra found.
London landlords will be hit hardest as rental homes in the capital typically have the worst EPC ratings. Nearly two-thirds (62pc) of rental properties in the capital are rated band D or below, meaning landlords here will have to pay a total of £9.1bn to make upgrades.
In the South East, 57pc of rental properties are currently below the target, meaning investors must pay £3bn.
EPC ratings are a measure of fuel cost efficiency, which means that tenants in lower-rated properties already face the highest bills and are most exposed to rising costs ahead of the anticipated 40pc rise in the energy price cap in October.
These tenants are now most at risk of eviction, as landlords with lower-rated properties that will be costly to upgrade are most likely to sell up.
Giles Mackay, of Outra, said: “The market has two problems: a lack of quality rental stock and the potential for huge numbers of landlords to leave the market.”
Small-scale landlords who cannot shoulder the cost of upgrades will be under particular pressure to sell, said Mr Mackay. Others will raise rents to cover their costs.
More than half of landlords plan to increase rents over the year ahead due to the pressures of rising costs, according to The Landlord Works, the buy-to-let arm of Nationwide building society.
The cost-of-living crisis and rising interest rates, which are increasing landlords’ mortgage payments and eating into their profit margins, mean buy-to-let investors are under increasing financial pressure.
The strain on the sector is already clear. Almost half of landlords (44pc) have financially supported their tenants over the last 12 months, taking measures such as reducing or pausing rent payments.
But landlords have a limited buffer – 45pc said that any reduction in rent will harm them financially.
The Department for Business, Energy and Industrial Strategy did not respond to a request for comment.