As the UK strides toward its net-zero ambitions, landlords of Houses in Multiple Occupation (HMOs) in England and Wales face a transformative requirement: by 2030, all rental properties must achieve an Energy Performance Certificate (EPC) rating of C or above. With energy bills typically included in the rent for 90% of HMOs across the UK, this legislation not only ensures compliance but also unlocks strategic financial advantages. Of the 74,000 HMOs housed in detached, semi-detached, and terraced properties, 64% (approximately 47,000 HMOs) are currently rated D or below. This is even higher than the national average of 52% for all rented stock, so HMOs have some work to do!
It’s also worth noting that we have seen a lot of new HMO Investors coming to the table that specifically targeting HMOs with EPC C-rating, including Investment Funds and REITs. The purpose of this blog is to look at the upgrade options open to invests and assess the capital outlay involved against the cashflow improvement that they offer.
What are the EPC C Requirements
The government’s mandate, part of its broader commitment to reduce carbon emissions by 2050 and tackle fuel poverty, sets a clear timeline for compliance. By 2028, new HMO tenancies must meet the EPC C standard, with all existing tenancies following suit by 2030. For HMOs, where a single EPC typically covers the entire building rather than individual rooms, this requirement is particularly significant. Non-compliance carries hefty penalties, with fines potentially reaching £30,000 per property, a sharp rise from the current £5,000 cap for breaching the existing EPC E threshold. To ease the financial burden, a proposed cost cap of £15,000 per property applies, with potential exemptions for upgrades exceeding £10,000 where affordability is an issue. By 2026, EPC assessments will evolve, prioritising fabric performance (insulation and heat retention), heating system efficiency, and smart readiness (energy-monitoring technology), reshaping how landlords approach upgrades.
The inclusion of energy bills in HMO rents, standard practice for 90% of properties nationwide, makes this an opportunity for HMO landlords to actually improve cashflow. Unlike the 10% of HMOs—often in specific regions—where tenants pay utilities separately, most landlords bear these costs directly.
The Unique Challenges of HMOs in Meeting EPC C
HMOs, often housed in older buildings converted for multiple tenants, face distinct hurdles. Of the 47,000 HMOs requiring improvement, nearly half exceed 120 square metres, and a quarter surpass 150 square metres. Larger HMOs, particularly those above 150 square metres, typically feature high ceilings, wide hallways, and single-brick construction, all of which exacerbate heat loss and complicate efficiency upgrades. Outdated heating systems, poor insulation, and shared spaces with high energy demands further depress EPC ratings.
Strategic Upgrades to Achieve EPC C
Elevating an HMO to EPC C requires a tailored approach, balancing upfront costs against long-term savings. Below, I outline key upgrades, each accompanied by a cost-benefit analysis to equip investors with the insights needed to optimise returns.
Insulation
Insulation forms the cornerstone of energy efficiency, directly addressing the new EPC’s focus on fabric performance. For a typical 120-square-metre HMO, installing 270mm loft insulation costs approximately £800 to £1,200, depending on access and labour. This upgrade can save £200 annually on heating costs, yielding a 20% return on investment (ROI). Cavity wall insulation, suitable for post-1920s properties, costs £2,500 to £4,000 for a similar-sized HMO and delivers savings of £300 per year, offering approx 10% per annum return. For larger HMOs above 150 square metres with single-brick walls, external wall insulation may be necessary, costing £12,000 to £20,000. While this generates approximately £600 in annual savings, this equates to around 3-5% per annum saving, the returns can improve by accessing grants.
Heating Systems
Upgrading heating systems is pivotal, given their weight in the revised EPC metrics. Replacing an old gas boiler with an A-rated condensing model costs £3,000 to £5,000 for a 120-square-metre HMO. This can save £400 annually on gas bills, delivering a 10% per annum saving. For larger HMOs, air-source heat pumps, costing £10,000 to £15,000, offer a low-carbon alternative, saving £500 per year when paired with smart controls, equating to a 3% to 5% ROI. Smart thermostats, at £200 to £500 per property, enable precise heating management across rooms, saving £100 annually for a 20-50% ROI.
Windows and Doors
There are lots of HMOs with drafty windows and doors. Installing double-glazed windows in a 120-square-metre property costs £5,000 to £8,000, reducing heat loss and saving £250 per year, for a 3-5% ROI. For listed buildings, secondary glazing or internal glazing at £3,000 offers similar benefits with a 6% ROI. Draught-proofing doors and windows, a low-cost measure at £150 to £300, saves £50 annually, yielding a 16-33% ROI.
Lighting
Lighting upgrades offer immediate returns, especially in HMOs with high communal usage. Switching to LED bulbs across a 120-square-metre HMO costs £100 to £200, saving £150 per year on electricity, a 75% ROI. Adding motion sensors in shared areas, at £300 to £500, cuts usage further, saving £100 annually for a 20-50% ROI. For larger properties above 150 square metres, costs may double, but savings rise proportionately.
Renewable Energy
Solar photovoltaic (PV) panels represent a bold step toward EPC A or B ratings. For a 120-square-metre HMO, installation costs £6,000 to £8,000, generating £400 in annual electricity savings and export tariffs via the Smart Export Guarantee. This delivers a 5-7% ROI but has the potential to achieve EPC C single-handedly in some cases. Larger HMOs require systems up to £12,000, but savings of £600 per year maintain similar returns. Solar thermal systems, at £4,000, support high hot water demands, saving £200 annually for a 5% ROI.
Notes
These are just estimates and not accurate figures. The data can vary depending on the size and makeup of the house and certainly the location of the HMO. Costs are significantly higher for labour in the South than they are in the North.
Grants
Funding options can significantly reduce upfront costs. The Warm Homes: Local Grant, launching in 2025, targets HMOs rated D to G, offering up to £15,000 for insulation and heat pumps, particularly for low-income tenants. The Energy Company Obligation and Great British Insulation Scheme provide additional support, while local councils may offer loans or grants. For self-funded upgrades, prioritise high-ROI measures like LEDs and draught-proofing to stay within the £15,000 cap, ensuring exemptions are available if costs exceed £10,000.
Recommendations
To begin with, our recommendation is start with an updated EPC, costing £35 to £120, to pinpoint exact inefficiencies. If you are looking at HMOs to buy this is something to consider when doing your due diligence, however it is also noted that this EPC policy has been cancelled before and reinstated, so there is always the opportunity for the government to do another U-turn! Either way, there is an added benefit to HMO landlords to implement some optimisation for energy efficiency particularly where utility bills are included and make up more than 25% of the gross income being generated.
