The product will be based on the Valuer project, which sets out to determine the difference in cost and value between a home which has an EPC rating of A to C against one which is rated D to G.
The project will assess new-build homes in Parc Eirin, Tonyrefail and the Eastern High development in Cardiff, both in South Wales. This will be compared to data gathered from Rightmove on secondhand residences in surrounding areas.
The aim is for Monmouthshire to adapt its affordability calculator to accurately reflect energy bills. This will allow the mutual to see whether a borrower has the flexibility to access more finance.
Monmouthshire agreed to take part in the project last year after it was suggested by a broker.
Delays caused by the pandemic meant the rollout of the mortgages was put on hold, but the products have recently gone live at the Tonyrefail site. They will be available to buyers at the Cardiff development in the new year.
Motivating buyers
Graham Sumsion, lending operations manager at Monmouthshire Building Society, said: “Most lenders, including ourselves, look at data from the Office for National Statistics (ONS) to model expenditure.
“What we’ve said is specifically for energy, we will substitute ONS data and pull data from the Sero model which uses a more comprehensive data set.”
Sero, the sustainable homebuilder and energy service provider that is leading the project, comprises data from a home’s EPC rating, the number of bedrooms it has and how energy is used.
Sumsion added: “What this means is if you’re buying a more energy-efficient home then your expenditure is less, and we can lend you a little more. So, if you need to borrow more because you’re buying an A rated property, this affordability calculator will allow you to do that.
“That was the purpose of us developing this, so we could solve that challenge.”
“We’re looking at whether this intervention makes a bigger difference than your typical green mortgage which has a lower interest rate,” he said.
Rather than a special rate, borrowers are offered the mutual’s standard mortgage prices and told they could potentially access more money if their home has a higher EPC rating.
Andrew Sutton, co-founder of Sero, said making homes greener was generally considered too expensive and the return was often not evident.
He said: “The UK is fascinated by whether their home value has gone up or not. Even social landlords rely on mortgaging at portfolio scale and leverage the funding off the back of that asset.
“Everyone regardless of tenure is relying on the value of the home. If we can evidence there is a difference in value, it makes the mission to deliver net zero possible.”
Lower rated homes
Sumsion admitted the project would do little to help those in a home with an EPC rating of D or lower, but said it had implemented other measures to make sure these homeowners still had options.
The green mortgage trial is running alongside a retrofit project called Pathway to Zero. This offers the Monmouthshire’s existing borrowers a free whole home survey to determine what actions they can take to make their homes more energy efficient.
It will be based on modelling done by Sero which looks at how a borrower’s home is used over 15 minute intervals and predicts what its carbon footprint will be from now until 2050.
Sutton said: “We put that together and model how their home can decarbonise, including how certain interventions will affect their energy bills and their carbon footprint. The tool works that out on a granular level and ensures the measures being recommended are technically appropriate.”
He said many homeowners unintentionally made the efficiency in their homes worse by going for popularised measures without thinking about whether it was actually beneficial.
“What this does is provide them with technical confidence. The homeowner still retains choice but it’s from a limited palette of appropriate measures, rather than whoever turned up at their front door and tried to sell them something,” Sutton added.
Monmouthshire will offer these borrowers a further advance to make any renovations where appropriate.
Sumsion said: “Most of our book is D rated, which will be the case for lenders, and we have to make sure we don’t leave those people behind and make their properties less valuable. It’ll often be those who can afford it the least who get left behind.”
“All lenders are on the journey but there are people who should be able to borrow more money but there also needs to be a collaboration between government and suppliers to support these homeowners,” he added.
The green mortgage trial is currently only available direct to customers, but Sumsion said Monmouthshire was working on making it sellable through brokers.
“Brokers deliver the majority of our business, and it was a broker who introduced us to this proposition,” he said.
The product is only open to homeowners currently, but the mutual is also working on extending this to landlords.
The project will run until Q1 next year and once the data has been collected, Monmouthshire is considering opening it up to the whole of market.
