It’s important to remember that the green mortgage market is still a relatively new development in a sector that has existed for hundreds of years.
To date, green mortgages have typically focused on discounted rates for energy efficient homes and cashback incentives for home upgrades, but there has been a shift toward innovation in 2023 with some trailblazing products launched to market to support customers.
A developing range
This year saw Leeds Building Society launch enhanced affordability for energy efficient properties. Nationwide created a zero per cent additional borrowing product for existing mortgage customers to fund energy efficient home improvements.
NatWest developed their home energy hub, designed to support customers to identify how they can make energy-efficient upgrades, what changes work for their home and options to finance them. Finance is an enabler for those looking to make home energy upgrades and holistic advice from trusted advisers is key to supporting customers and driving demand.
There is a need to encourage more innovation in the green mortgage market. With around a third of UK homes owned with a mortgage and 2050’s net zero deadline closer than the average first time buyer’s mortgage term, green mortgages can play a vital role in providing finance to homeowners looking to improve their homes.
What the green mortgage market needs
In 2024, the focus needs to transition from early product design towards commercially viable, scalable propositions that enable retrofitting at scale, supporting homeowners for decades to come.
Continued innovation will see products evolve from circa 10 basis point discounts, towards comprehensive propositions that support customers as part of an end-to-end home upgrade journey. The mortgage process should be updated to include a home energy efficiency survey that maps out an upgrade plan tailored to a customer’s home, with clear information on the timeline, cost and finance options. Linking this process to trades to carry out this work could help customers make an informed choice with a smooth customer journey, with a simple route to finance.
Currently mortgage affordability takes energy bill estimates into account using a one-size-fits-all approach through ONS data, but given the potential monthly difference between an EPC A rated home and an EPC F-rated home, there is a need to tailor to individual circumstances. By updating affordability to recognise actual energy bills and/or energy efficiency, this model would help support customers to move into energy efficient homes.
Lenders and brokers can play a key role by signposting grant funding to consumers, such as the Boiler Upgrade Scheme. Making additional educational tools available for customers will help drive awareness, especially if including energy efficiency and whole home planning in part of the standard advice and compliance process.
Encouraging and supporting homeowners
We need a blend of policy and regulatory levers as well as incentives to educate consumers on the opportunities and benefits of energy efficiency upgrades. Not everyone will require access to finance, but there should be products in place to support those looking to finance to support them to make green home improvements.
When consumer demand for energy efficiency home upgrades increases, financial institutions need to be ready with well-designed products and low-friction customer journeys that deliver practical solutions.
People do not buy mortgages, they buy homes – the same thinking can be applied when it comes to scaling the green mortgage market; customers won’t necessarily seek out a green mortgage, they will instead be looking for the most suitable way to finance energy-efficient upgrades to their home or purchase an already energy efficient home.
2023 saw some innovative green mortgage products launched, laying the foundation for more product design to come. By continuing to test, learn, and analyse data from current green mortgage products, lenders are positioning themselves well to understand how to support consumers through 2024 and beyond.
