By early 2026, energy performance has become a core credit consideration rather than a peripheral compliance issue. While EPC ratings have influenced property finance decisions for several years, the dynamic has shifted materially. Lenders are no longer offering incentives for efficient buildings alone; they are increasingly penalising inefficient ones. This phenomenon is now widely referred to within credit committees as the “brown discount”.

This change is occurring against a backdrop of sustained regulatory pressure, lender ESG reporting obligations, and a higher-for-longer interest rate environment. Following the Bank of England’s decision to hold the base rate in February 2026, lenders have focused less on short-term rate volatility and more on long-term asset risk. EPC performance sits squarely within that assessment, particularly for commercial property and larger residential portfolios.

At Willow Private Finance, we are seeing EPC-driven outcomes directly affect refinancing conversations. Assets that would have refinanced smoothly in 2023 or 2024 are now encountering lower loan-to-value limits, higher margins, or additional covenants solely due to their energy performance profile.

This article examines how the brown discount is being applied in 2026, why lenders are enforcing it more aggressively, and what borrowers need to consider when refinancing EPC-challenged assets.

Market Context In 2026

The regulatory direction of travel on energy efficiency is well established. Minimum Energy Efficiency Standards (MEES) remain under active review, and while timelines have shifted, the long-term expectation of improved EPC performance is clear. Lenders, meanwhile, are not waiting for statutory deadlines to act.

In 2026, banks and specialist lenders are under increasing pressure to demonstrate ESG alignment in their loan books. This is driven not only by government policy, but by capital markets, institutional funding lines, and internal risk governance. Assets with poor EPC ratings are viewed as carrying heightened obsolescence risk, higher future capex requirements, and potential liquidity constraints.

Data published by UK Finance in late 2025 highlighted a growing divergence in lending terms based on sustainability metrics, particularly in commercial real estate. This divergence has now filtered into large residential portfolios, mixed-use assets, and even some higher-value single residential properties.

Crucially, this is not a moral or political judgement by lenders. It is a balance sheet decision. Properties that may require mandated upgrades in future years represent uncertainty in valuation, cash flow, and exit liquidity. In a cautious credit environment, that uncertainty is increasingly priced in.

How EPC Performance Now Influences Refinance Outcomes

In practical terms, EPC ratings in 2026 influence three core elements of refinancing: leverage, pricing, and structure.

Leverage is the most immediate impact. Lenders are commonly applying lower maximum LTVs to properties rated E, F, or G. Even where headline policy allows higher leverage, credit committees often impose asset-specific caps for “brown” buildings, particularly where future upgrade costs are unclear.

Pricing is the second lever. Rather than offering green discounts, lenders are applying margin uplifts to compensate for perceived long-term risk. These uplifts are not always explicitly labelled as EPC-related, but the correlation is clear when comparing terms across similar assets with different ratings.

Structure is the third area of impact. Shorter loan terms, increased amortisation, or capital expenditure undertakings are becoming more common. In some cases, lenders require borrowers to commit to EPC improvement works within a defined timeframe as a condition of refinance.

Taken together, these factors mean that EPC ratings now have a tangible cost of capital implication, not just a regulatory one.

What Lenders Are Looking For In 2026

Lenders are not expecting every property to achieve top-tier EPC ratings immediately. What they are looking for is clarity and credibility.

Assets with poor EPC ratings but a clear, costed improvement plan are often treated more favourably than assets with marginally better ratings but no strategy. Lenders want to understand whether energy inefficiency is a temporary condition or a structural flaw.

The age and construction of the building matter. Solid-wall properties, listed buildings, and complex commercial assets are assessed differently from standard stock, but they are not exempt from scrutiny. Lenders are increasingly differentiating between “hard to improve” and “neglected” assets.

Borrower engagement is also critical. Credit committees respond more positively where borrowers demonstrate awareness of EPC issues and have integrated them into longer-term asset planning, rather than treating them as an external imposition.

Finally, portfolio context matters. A single brown asset within an otherwise strong portfolio may be tolerated. A concentration of inefficient properties is far more likely to trigger restrictive terms.

Common Challenges And Misconceptions

A frequent misconception is that EPC issues only matter at acquisition. In reality, refinancing is where the brown discount is most acutely felt, because lenders reassess risk against current and forward-looking standards.

Another challenge is assuming that EPC penalties are uniform. In practice, application is uneven across lenders, sectors, and asset types. This makes lender selection and case positioning more important than ever.

Some borrowers also underestimate how quickly valuation assumptions can change once EPC risk is factored in. Valuers are increasingly commenting on sustainability risk, which can feed directly into loan sizing.

Finally, there is a tendency to delay action on EPC improvements in the hope that regulation will soften. In 2026, lenders are signalling that waiting carries its own financial cost.

Where Most Borrowers Inadvertently Go Wrong In 2026

Many borrowers approach refinancing as a rate exercise, focusing on headline pricing rather than asset positioning. They submit cases without addressing EPC risk, assuming it can be dealt with later or ignored entirely.

This often results in reactive outcomes: reduced loan offers, late-stage repricing, or additional conditions imposed after valuation. Once a lender has flagged EPC risk internally, negotiating leverage is limited.

This is where Willow Private Finance adds the most value: intervening before another application is made and controlling how the case is presented to market.

Structuring Strategies That Improve Approval Odds

In 2026, successful refinancing of brown assets is rarely about finding a single “best” lender. It is about structuring the case to manage risk perception.

Conservative leverage improves outcomes. Accepting a slightly lower loan size can unlock materially better pricing and flexibility, particularly where EPC upgrades are planned but not yet completed.

Ring-fencing assets is another strategy. Separating inefficient properties from stronger assets prevents risk contagion across portfolios and allows lenders to assess each asset on its merits.

Timing matters as well. Aligning refinancing with planned capex or lease events can strengthen the narrative and provide lenders with confidence that EPC issues are being actively managed.

Hypothetical Scenario: Refinance Impacted By EPC Rating

Consider a mixed-use property with a ground-floor commercial unit and residential flats above, rated EPC E. In 2024, the asset refinanced at 65% LTV without issue. In 2026, the same asset is reassessed, with the lender capping leverage at 55% and applying a margin premium.

By presenting a phased improvement plan and adjusting the loan request, the borrower secures refinancing, but on different terms. The outcome illustrates the brown discount in action: finance remains available, but conditions have changed.

Outlook For 2026 And Beyond

The influence of EPC ratings on property finance is unlikely to diminish. As ESG reporting becomes more embedded in lender funding structures, sustainability risk will remain a pricing and leverage consideration.

Borrowers who treat EPC as part of core asset strategy, rather than a regulatory nuisance, will be better positioned to navigate refinancing in the years ahead.

Frequently Asked Questions

What do lenders actually mean by the “brown discount” in 2026?
The “brown discount” refers to the way lenders now explicitly price energy inefficiency into refinance outcomes. Properties with poor EPC ratings are increasingly viewed as carrying higher long-term risk due to potential regulatory intervention, future capital expenditure requirements, and reduced exit liquidity. As a result, lenders compensate for this risk through lower loan-to-value limits, higher margins, tighter covenants, or a combination of all three.

Why has EPC performance become more important at refinance than at purchase?
At refinance, lenders reassess the asset against current and forward-looking risk assumptions rather than historic conditions. In 2026, EPC performance is seen as a proxy for future obsolescence risk, meaning lenders are focused on how the asset will perform over the next lending cycle, not how it has performed historically. This makes refinancing the point at which EPC risk is most directly reflected in loan terms.

How are valuers influencing the impact of EPC ratings on lending decisions?
Valuers are increasingly commenting on sustainability and energy efficiency within valuation reports, particularly for commercial and mixed-use assets. These comments do not always reduce the headline valuation, but they can influence lender confidence, credit committee discussion, and loan sizing. In some cases, sustainability risk is reflected through valuation assumptions rather than explicit value reductions, indirectly affecting leverage.

Are lenders applying the same EPC standards across all property types?
No. Lenders differentiate between asset classes, construction types, and improvement feasibility. A listed building or solid-wall property may be assessed differently from standard housing stock, but this does not mean EPC risk is ignored. Instead, lenders assess whether the inefficiency is inherent and managed, or avoidable and unaddressed, which materially affects outcomes.

Can a poor EPC rating alone prevent a refinance in 2026?
In most cases, a poor EPC rating will not make refinancing impossible, but it will influence the terms on offer. Borrowers may face reduced leverage, higher pricing, or requirements to commit to future improvements. Where EPC risk is combined with other concerns—such as high leverage or weak cash flow—the cumulative effect can lead to declined or materially restructured offers.

Do EPC improvement plans genuinely help with lender approval?
Yes, but only where they are credible, costed, and realistic. Lenders respond positively to clear improvement strategies that demonstrate borrower engagement and long-term planning. Vague intentions or unfunded plans carry little weight, whereas phased upgrades aligned with lease events or refinancing cycles can materially improve lender confidence.

Is the brown discount driven by regulation or by lender choice?
It is driven by both. While regulation sets the direction of travel, the immediate application of the brown discount is a lender balance-sheet decision. Banks and specialist lenders face ESG reporting obligations, funding line constraints, and internal risk governance that require them to manage sustainability exposure proactively rather than reactively.

Will the brown discount increase further after 2026?
While no outcome is guaranteed, the trajectory suggests that EPC performance will remain a core credit consideration. As ESG metrics become more embedded in funding and capital allocation, it is likely that inefficient assets will continue to face tighter terms relative to efficient ones, particularly at refinance or maturity events.

What is the biggest mistake borrowers make when refinancing EPC-challenged assets?
The most common mistake is treating EPC as a secondary issue and addressing it only after lenders or valuers raise concerns. By that stage, negotiating leverage is reduced and terms are often imposed rather than discussed. Proactive positioning—before submission—is critical to controlling outcomes.

How Willow Private Finance Can Help

Willow Private Finance supports borrowers refinancing complex and EPC-challenged assets across the UK. As an independent, whole-of-market intermediary, we help clients understand how lenders are applying sustainability risk in practice and how to structure cases accordingly.

Our role is to manage lender selection, sequencing, and presentation so that EPC considerations are addressed proactively rather than defensively.

Want Help Refinancing An EPC-Challenged Property In 2026?

Book a free strategy call with one of our mortgage specialists.

We’ll help you assess lender appetite and structure refinancing around EPC risk.