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Lenders must embrace innovation to encourage sustainable self-building – McSherry

by: Tom McSherry, self-build mortgage and financial specialist for the London Homebuilding & Renovating Show
  • 10/10/2022
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Lenders must embrace innovation to encourage sustainable self-building – McSherry
Reducing energy consumption to protect the environment and save money has probably been a bigger issue.

The fear of continuing energy price increases – somewhat lessened by recent changes to the proposed price cap increase – and the threat of an under-supply is at a level not heard of since the 1970s. 

We know that self and custom builders are already energy conscious, with a survey carried out by the National Custom and Self Build Association and the Building Societies Association in 2020 finding that 89 per cent of respondents stressed that energy efficiency was important to them. 

This reflects our own experience at BuildStore where we are seeing many more clients who are very excited about building their home using modern materials, construction methods and features which can potentially provide huge reductions in energy usage. 

Self and custom builders are generally very environmentally aware and know that by building in this way, they can reduce the environmental impact of their home, both during construction and its lifetime. 

So, what can the mortgage industry do to incentivise more people to build or renovate homes which use less energy?  


Welcome modern construction methods 

The first significant obstacle is that mortgage lenders’ policies are still dominated by the comfort of lending on houses built with bricks, blocks and concrete.   

There is limited availability of finance for very modern methods of construction which often use combinations of timber and modern, highly efficient materials built off-site in prefabricated sections. This form of construction can easily incorporate high levels of insulation and efficient heating and cooling systems as well as reducing waste during the manufacture and construction process.   

Mortgage providers need to accept that properties created by these high-quality build systems are suitable security for a mortgage and can be readily sold further down the line.   


More available and affordable mortgages 

The second hurdle is to make funding the extra cost of building or renovating to a highly energy efficient standard more available and affordable and to reduce the payback time. ‘Green’ mortgage product design so far has been very simplistic, generally focused on small reductions in interest rates for properties that have a high Energy Performance Certificate rating.   

We would like to see mortgage deals available which really incentivise those who build to the highest standards of energy efficiency, perhaps measured through the government’s Standard Assessment Procedure (SAP).    

Low or even zero interest rates could be applied to specific retrofitted features in renovation projects. This could make payback for items such as high levels of insulation, heat pumps, mechanical ventilation with heat recovery (MVHR) systems and solar panels affordable over five or 10 years.   

Lenders should also use the lower projected energy costs as a way to offer larger mortgages to help borrowers fund the extra cost of building in this way. 

Although more limited than for the most established construction types and materials, finance is certainly available for self-builders to build an energy efficient home. This availability is likely to increase given the global desire to reduce the amount of energy we use and to move towards ‘net-zero’ in terms of carbon emissions. 

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