Miliband and Rayner press ahead with plans to enforce Minimum Energy Efficiency Standards that would demand improvements to 57% of the Private Rented Sector
The Department for Net Zero and Energy Security (DESNZ) has today announced that it is relaunching the consultation proposing stricter Minimum Energy Efficiency Standards (MEES) for the Private Rented Sector (PRS).
Mortgage lenders and businesses with privately rented portfolios will soon have to retrofit their properties to reach a minimum EPC grade of C.
Currently, there is too much reliance on inaccurate and outdated EPC data, causing a real risk as the industry is misinformed about how best to support landlords to improve UK homes.
Read on to uncover how MEES will impact the mortgage lending industry, including guidance on how to calculate the most cost-effective route to EPC C for landlord customers.
The MEES-ing link for net zero
Six months into its administration the new government has reintroduced the consultation on higher energy efficiency standards for the PRS. This would apply to new tenancies from 2028 and all tenancies from 2030, requiring properties to reach a minimum of EPC C.
This policy is critical in helping the government meet its statutory 2030 fuel poverty target as well as delivering maximum benefits for tenants, including warmer homes and lower energy bills.
New MEES is also projected to reduce emissions by 1,568,913 tCO2e, setting a path for further efficiency improvements throughout the 2030s.
The current Climate Change Committee pathway for UK property requires 89% of homes to be A to C by 2035 in order to reduce energy demand, supporting a switch to renewable sources.
For mortgage lenders, these regulatory changes introduce significant transition risks and financial exposure across existing portfolios. Whilst flood risk reporting and scenario planning is well advanced, Kamma’s assessment of 85 mortgage lender transition plans found little reference to transition risk scenarios such as this.
Current estimates suggest that 56.8% of PRS properties remain below EPC C, meaning a substantial portion of mortgage-backed assets may be at risk of devaluation, increased arrears, or even regulatory non-compliance.
Given the scale of upcoming retrofit requirements and the variation in associated costs, mortgage lenders will need robust data-driven strategies to mitigate risk and support borrowers in achieving compliance efficiently.
Assessing the financial risk to mortgage lenders
The implications of the new MEES for lenders are multifaceted:
- Affordability risk: Rentals with poor energy efficiency increase landlord exposure to arrears as borrowers struggle to keep up with higher energy costs. Landlords may also be exposed to higher bills themselves or face fines up to £30,000 if found to be non-compliant.
- Collateral risk: Properties with EPC ratings below C are at risk of value depreciation, particularly as buyers and investors increasingly favour energy-efficient homes.
- Portfolio exposure: Without targeted intervention, lenders will be left with assets that are banned from being let out.
- Regulatory risk: The UK’s regulatory direction continues to align with climate objectives. While mortgage portfolios are not yet directly subject to EPC compliance, lenders are expected to demonstrate progress on climate transition planning under IFRS S2.
The government consultation has estimated a retrofit cost range of £6,100 – £6,800 per property. However, without precise property-level data, lenders and their borrowers may struggle to access cost-effective upgrade pathways, leading to unnecessary expenditure or failure to meet compliance altogether.
It also obscures the fact that many borrowers can reach EPC C with low-cost retrofits that come significantly below the government’s suggested average cost.
How to manage EPC risk
The first and most important question to answer on reaching EPC C, unsurprising, is how much does it cost? Accurately measuring the ‘cost to C’ is critical in helping lenders fully assess exposure to risk from noncompliance with MEES.
Conventional market analysis estimates that almost 60% of properties can only reach EPC C with retrofits that are potentially unaffordable to the borrower. This would make 3 in every 5 properties ‘high risk’ from a lending perspective.
However this estimate is both blunt and expensive as a lack of nuance fails to separate properties that could easily and affordably upgrade, compared to those that may struggle. A more robust stress test would calculate ‘cost to C’ using current retrofit pricing and an optimised route to C, rather than rely on EPC averages.
When Kamma ran a stress test on 200,000 BTL properties, only 14% of were considered high risk when comparing the cost to C with the value of the asset. This approach allows lenders to create robust and precise lending policy, with decisioning based on a thorough understanding of exposure to transition risk for each individual property, rather than a blunt proxy.
Kamma’s data intelligence platform equips mortgage lenders with the tools needed to assess and mitigate EPC risk across entire loan books. By integrating geospatial intelligence, predictive modelling, and regulatory insights, Kamma enables lenders to proactively address MEES compliance while optimising portfolio resilience.
Lenders need a data-driven approach
- Portfolio-wide EPC risk mapping: Kamma’s platform matches more PRS properties within a lender’s portfolio with an EPC than the rest of the market; providing the clearest view on properties below EPC C, quantifying the scale of exposure, and enabling targeted intervention strategies.
- Targeted borrower engagement: Lenders can proactively support borrowers with tailored retrofit recommendations, ensuring that upgrade costs are minimised and affordable.
- Loan book resilience and capital planning: By forecasting the cost of achieving EPC C on a per-property basis, Kamma helps lenders integrate EPC transition planning into capital adequacy assessments, ICAAP stress testing, and climate transition frameworks.
- Green lending and mortgage innovation: With increasing demand for green finance, Kamma provides cost to C at point of origination, enabling lenders to design competitive green mortgage products, aligning lending strategies with regulatory expectations and ESG commitments.
Don’t make a MEES of it – act early
As oversight on climate risk intensifies, mortgage portfolios that demonstrate strong EPC alignment will benefit from:
- Reduced default risk: Homes with lower energy costs are less likely to fall into arrears.
- Enhanced asset valuations: Energy-efficient properties are increasingly sought after, preserving collateral value and improving long-term loan book performance.
- Access to green funding opportunities: Lenders with robust EPC transition strategies will be well-positioned to capitalise on the growth of green finance markets.
MEES-age received
MEES compliance is no longer a distant policy goal – it is an imminent regulatory shift with substantial financial implications for mortgage lenders.
EPC ratings alone won’t be enough; IFRS S2 will demand more rigorous stress tests that assess how lenders plan to decarbonise mortgage portfolios. Critical to this is understanding the retrofit costs associated with improving every portfolio property to EPC C or above.
To learn more about the cost to EPC C, book a quick call with our team.
