Energy ratings for homes are to be overhauled amid fears property owners will be left unable to sell or rent.
Ministers are considering how to reform the Energy Performance Certificate system, under which homes are rated from A to G depending on how energy efficient they are deemed to be.
The system was originally set up to comply with an EU directive and as a way to help people understand their energy costs, but under Net Zero plans they are set to determine whether homes can be rented. The ratings can also affect mortgages.
It is understood Michael Gove is “very worried” about the sustainability of the private rental market, and that landlords could be driven out by the huge cost of retro-fitting their properties to meet the ratings.
The Housing Secretary is examining how to make the assessment system fairer and more objective, following concerns it is open to abuse.
He is considering pushing back the date by which landlords have to make sure their home is at least level C on the EPG rating scale - currently 2028. The level itself could also be lowered.
The news came on the day that the Government unveiled new details of its net zero strategy, which included plans to encourage people to move from gas to electricity and to install environmentally-friendly heat pumps.
According to industry sources, Mr Gove criticised the EPC system at last week’s Tory spring forum.
Speaking at the Conservative spring conference last weekend, he said: “There are a number of weaknesses with the EPC method which actually drive some perverse outcomes.”
The EPC system was introduced by Labour in 2007, in compliance with a European Union directive.
It had been planned that up to two million landlords would have to increase the EPC rating of their properties to a minimum of a C standard by 2028 - on pain of a fine of up to £30,000.
A Whitehall source said people were being “penalised” by an imperfect system.
“Ministers are very worried about the effect on the overall supply in the private rented sector, the housing market more generally, and they are worried about non-residential as well,” the source said.
“Everything is on the table; we are open to different options.
“Landlords should continue to make improvements to homes. Energy-inefficient and draughty homes must be improved, but we are worried about supply in the market.”
The source said the Government was still committed to the net zero target, saying: “We are not against more energy efficient homes, and we think it is important people can live in homes which are safe and high quality.
“But we need to take steps to improve the system. The EPC system is flawed, so we are reviewing how it works; timings around the requirements and reviewing the system more generally.”
One of the problems with the current system is that it relies on assessors who do not receive much training - just level 2 NVQ.
And they have to guess various elements contributing to the EPC rating such as the age of the building and whether walls are insulated.
There are also anecdotes of assessors being paid for different ratings and landlords shopping around to improve their ratings.
“At present you can have different assessments made by different inspectors,” the source said. “It’s not objective enough.
“There are some strange rules where you can get a better rating by installing solar panels even though that has nothing to do with energy efficiency.
“Inspectors may, for example, make a guess on whether a house has cavity wall insulation.
“So people are being penalised by an imperfect system. We want to ensure we concentrate on the worst homes, because at the moment the system encourages people to make silly investments just to jump from the D to E boundary.
“If you have a flat which is double glazed and relatively modern, we do not believe you should not be able to rent it because of an assessment.”
Mortgage lenders will be required to have an average EPC rating of C across their lending portfolios by 2030, under proposals previously floated by the Government, so the ratings affect homeowners who are not landlords.
The source added: “Our previous commitment was that landlords have to get up to category C, and ministers are looking very closely at this.
“The level of supply in the private rented sector has remained stable, but there are huge additional numbers seeking to enter the rental market because people are getting on the housing ladder later in life, and because of net migration.
“We are worried we should not do anything which could cause rental rises when there is an increase in cost of living charges.”
Speaking to business leaders at the Tory spring conference, Mr Gove said: “We need to have a method of gauging the energy performance of homes, that is the method we have inherited, that was developed when we were in the EU.
“There are always merits in using a known measurement. But there are a number of weaknesses with the EPC method which actually drive some perverse outcomes.
“The department is doing a piece of work… to see if we can change it.”
The Housing Secretary said he believed the EPC system may be counterproductive because it could encourage people to sell.
“There is a broad debate, a question about whether EPC is the right measure of energy efficiency overall,” he said.
“As I have indicated I am not convinced that is, but for a variety of reasons it may be that everything is a trade-off – while it is not perfect it might be that it is the measure that is better that we use than others.
“I would not go to the stake to defend EPC as the perfect measurement overall.”
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