We have made a start, with lenders offering green mortgages. With these products, a handful of borrowers are being rewarded by having a good a Energy Performance Certificate (EPC) rating.
This puts the onus on the borrower, so I am a tad curious to know what lenders are doing to reduce their own commercial EPCs, for example.
Current state of play
NatWest is one such lender offering green mortgages and on their website they state that, according to UK government national statistics, residential properties make up 15 per cent of the UK’s total climate emissions. So, we can see why improving the energy efficiency of houses is important.
NatWest also state that they want to reduce these emissions and are rewarding borrowers who “are trying to do the same” by offering them a cashback reward for buying an energy efficient home.
That’s a nice bit of PR.
Generally, to qualify for a green mortgage, lenders require that the property must have an EPC rating of A or B; Foundation seem to be the exception to this, by allowing a C rating too.
It’s far too niche
Unsurprisingly, some 83 per cent of new build properties are A and B rated. Therefore, borrowers buying new builds will qualify for a green mortgage, regardless of whether they really are “trying to do the same” with lowering property emissions.
The challenge we face with existing properties is that only 3.1 per cent of these currently have an A or B rating, according to government data.
However, if we included properties with a C rating that would capture another 39 per cent of existing dwellings, more than half at a D or less rating.
It therefore makes sense to try and incentivise properties to at least get to a C rating and have more lenders accept this for their green mortgages, which might help borrowers improve their energy efficiency.
For me, green mortgages are simply too much of a niche product and we need these to move into the mainstream; after all the climate crisis is not a niche story.
Improving EPC ratings
Improving a home’s EPC rating can be achieved by one thing – spending money. Many landlords are already doing this on their investment properties and future tenants may select greener homes.
However, with residential properties, installing solar panels, enhancing loft insulation, wall insulation, changing the boiler or the lighting will cost money.
Perhaps therefore what we need is a “Going Green Remortgage”. With this, lenders provide borrowers with sufficient cashback to use to enhance their EPCs, rather than simply reward those who buy new homes.
The cashback could be released once the “going green” project is completed.
However, we would want lenders not to adjust their pricing for the cashback incentive as they tend to already do with their pricing models.