Given the fact that, by conservative estimates, the adviser community is selling three out of four mortgages in the UK, then that presents a number of issues, not least for those lenders currently offering these products.
Amidst the growing number of lenders offering, at the very least, green-tinged products it’s important to question whether specific specialist products of this nature are required, or as many argue, wouldn’t the options they offer be better as part of a standard mortgage?
There is also a question to be asked about what type of borrowers and properties they should be aimed at, and whether some lenders are completely missing the mark by, for example, offering ‘green’ incentives to those who are buying top-of-the-class EPC-rated properties anyway.
I would suggest they do not, and the focus should really be on getting existing UK properties up to the highest EPC standards, not merely giving those who have already bought, or about to buy one, the mortgage equivalent of a pat on the back.
Rental properties could drive change
It also seems clear to me that it will be landlord borrowers and buy-to-let lenders who (at least initially) have to lead the way here. Landlords already have a requirement that a property can’t be let out if its EPC rating is below E, and that will go up to below C from 2025.
For many landlords who want to keep letting these properties out, that’s going to require some potentially significant investment, and it therefore seems to make perfect sense for landlords to be offering these borrowers mortgages which incentivise them to get up to that level.
In the owner-occupation space, I think we can all guess that UK properties are going to go the same way in terms of their EPC requirements. Therefore again it would seem to make sense to be providing products which incentivise homeowners to understand what they currently have EPC-rating-wise, what improvements are required, and what potential mortgage-related incentives are available.
Currently, making those incentives part of a standard mortgage might appear to be a bridge too far, but it would only take a small number of lenders to move in this direction and I suspect an industry trend would emerge.
The argument against this change might be that it’s likely to add basis points to the mortgage but I’m not so sure – particularly in a low interest rate environment – whether that would be so concerning to borrowers if it meant they were being encouraged to fund improvements to meet those EPC targets.
Moving EPC target
I think we have to give lenders the benefit of the doubt and some time accepting there is a certain degree of learning on the job with green mortgages and green criteria particularly when we’re still not quite sure what is going to be required EPC-wise in the future.
However, it seems somewhat obvious that the focus has to be on encouraging and incentivising improvements to existing housing stock, and that those who own properties which already meet the very highest standards will, by design, not need that help. Perhaps switching incentives for the latter group into the wider borrower cohort would be a start, and then we can do much more to support borrowers – landlord and home owner – in getting their energy-inefficient houses in order.