Green mortgages can play a key role in delivering part of the £250bn of investment required to upgrade the UK’s housing stock, but further innovation is required to continue the greening of the UK’s 28 million homes by 2050.
To date, green mortgage products have largely fallen into one of the following two categories:
- Products which incentivise through product features such as discounted rates, cashback or other benefits factored into the product such as a home survey or discount on partnership items e.g. a smart thermostat.
- Products which incentivise purchasing decisions such as enhanced affordability for EPC A or B rated properties.
But increasingly, lenders are shifting focus towards designing products which build retrofitting works into the mortgage journey. These incentivise customers with lower EPC rated properties to consider making energy efficiency upgrades, either at the point of purchase or remortgaging.
With 14 million homes in England and Wales UK rated EPC D or below, lenders will need to continue to deliver innovative products that provide customers with finance to make upgrades to their existing homes.
Encouraging change
The lending sector is known for supporting people through some of the most important moments in their lives, providing vital access to finance to support homeownership. Building on this background, there is a strong willingness from lenders to innovate in the green mortgage space and continue to support customers.
Lenders recognise that green mortgages deliver a win-win, providing customers with finance that will enable them to live in warmer, more energy efficient homes, while also greening up their loan book, reducing their scope 3 emissions, and playing a key role in delivering net zero.
Enabling customers to improve their homes can lead to lower energy bills, warmer homes and an increase in value.
Everyone has a job to do
Consumers will need to be educated on these benefits and advised on how they can make beneficial home improvements. But it’s not just consumers, the Green Finance Institute has worked closely with mortgage lenders and brokers, as well as the wider market, to develop the Green Home Finance Principles, and the Lender’s and Broker’s Handbooks to educate all market stakeholders on key retrofitting technologies and drive awareness of the opportunities offered by green mortgages.
Lenders, brokers and other trusted advisers can play a key role in educating consumers about the benefits of green mortgage products. Increased awareness, along with policy incentives and access to finance, should lead to increased consumer demand for retrofitting. Increase demand could support up to 580,000 jobs annually according to analysis by PwC. Upskilling the supply chain in key technology areas, such as heat pumps, will be vital to ensure that consumers have the trust in skilled tradespeople to upgrade their homes.
The finance sector can lead from the front in providing access to much-needed funds to improve the quality and energy efficiency of UK homes and ensure they are future-proof. Across the board from mortgage brokers to distributors to lenders, regulators, trade bodies and beyond, there is a role to play in helping customers on the journey to greener, more comfortable homes.
To do this, there needs to be continued collaboration across the market, to share key learnings, and deliver innovative products that reward consumers for making greener choices and help to achieve net zero.
