This opinion was raised at Mortgage Advice Bureau’s (MAB’s) Green Mortgage event, which covered the next steps for the market.
The day started with a presentation from Jessica Sansom, sustainability director at Huel, who gave an overarching view on what could happen to the planet if no changes are made to improve energy efficiency.
She mentioned the pricing of green mortgage products and said rates often were not competitive as although lenders reward borrowers for having energy efficient properties, there tended to be cheaper equivalent rates on the wider market.
She also said more needed to be done through sourcing systems to let mortgage advisers and their clients know that a green mortgage was available so even if it is more expensive, the client can make an informed decision.
Sansom added: “People have to know what it is if we want to have any chance of them using it. And then, of course, they have to actually be competitive.”
She also said banks had a duty to make sure their propositions were not just green on the front end, but also behind the scenes with their investments.
Her presentation was followed by a question and answer segment. She was asked if the playing field was levelled on rates between green and non-green mortgages, would people still opt for the sustainable product?
Sansom said there were “endless surveys” which asked whether people would buy green if given the choice and said the public mood was “trending that way”.
She said outside of offering favourable rates, it was about empowering customers and letting them know the difference their choice made.
“Make sure that they understand and that they’re motivated to take that action. That they understand what the issues are and what a difference that they can make.
“If you just give people simple tools, and you say to them, ‘look, you can make a huge difference in your home. You can cut your footprint down by this much’, then they start to make those buying decisions. But if you don’t empower them first they won’t, so it’s got to be the full package,” she added.
Charging more for the green mortgage ‘privilege’
The presentation was followed by Ben Thompson, deputy CEO of MAB, who said despite sounding far off in the future, the UK’s 2050 net zero target was just “around the corner”.
Thompson said while MAB’s 10 per cent market share allowed it to enact change quickly and impactfully, reducing carbon emissions in the housing sector would have to be a cross industry effort to be effective.
“We have a massive opportunity to make change and do the right thing quickly,” he added.
Thompson said rising energy bills could make people think more about ways they could reduce this. However, referring to Sansom’s point of green mortgages not always being the most competitive, Thompson said borrowers should not have to pay more for the “privilege” of having a green product.
He added: “If you’re sourcing a mortgage – to complete Jessica’s point – and you’ve been presented with information on the green mortgage, that’s not as cheap as many other best buyers in the industry at the moment. How on earth can we influence change? We simply can’t.
“If I’m a customer, am I really going to pay more for the privilege of having a green mortgage? The answer has to be no.”
However, he said research ran by MAB earlier in the year suggested some borrowers may be willing to pay more but added: “The bit we should be listening to is [even though] they’re prepared to do a lot to do the right thing, they shouldn’t have to pay more.”
Lender risk assessment
This session was followed by a presentation from a high street lender representative, who said the sophistication of the financial services market and wealth creation closely aligned with the “destruction of our own planet”.
He said it was important for lenders to be aware of the risks posed to properties on their portfolios, as some could be impacted by severe weather and to consider how easy it may be for them to be insured.
He said if lenders knew their portfolios, then they could get in touch with customers to let them know what they could do to protect themselves from risk and improve their EPC rating so the overall quality of the back book could be better.
Leading people to change
A panel discussion was then held, where a mortgage adviser said the current ‘green mortgage’ gave people cheaper rates and cashback for an A, B, or C-rated home, but for anyone in a lower rated property, there was little to incentivise them to be more energy efficient during the fixed rate term of their mortgage.
Another panelist agreed, saying there were many “carrots” for people to consider a green mortgage or energy efficient home, but not enough “stick” pushing others to catch up.
One panelist, a representative from a challenger bank, added: “I think the cost of doing nothing as a lender, and the cost of doing nothing as a consumer far outweighs the cost of what needs to be done to make a difference. And I think the role we have to play is in educating the brokers, educating the consumer and showing its importance.”
Sansom said the industry needed to be agitators to enforce wider change.
Speaking from the audience, a specialist lender representative disagreed and said there needed to be “more carrot” as the narrative around greener homes tended to be negative unlike the narrative around electric cars which was usually positive and aspirational.
He said the discussion around improving a home’s EPC rating and becoming energy efficient overall had “beaten landlords up; [and] beaten consumers up. [The narrative is] ‘It’s all going to cost loads of money. Oh, but this is going to be painful what we’ve got to do it’.
“So, how do we take the learnings from electric cars, which has been really successful as already positive, and apply that to housing?”
A mainstream lender representative from the audience said there was a lot of work to be done with existing customers too as they were often left out of the conversation.
One panelist, a representative of a specialist lender, said that it issued communications ahead of borrowers’ mortgage expiry dates letting them know their home’s EPC rating and what products they could benefit from by improving this.
In the audience, a representative from a specialist lender said although this was being consulted on, current IRFS9 modelling did not allow lenders to create products which incentivised borrowers on very low rated properties to make significant changes to become a high rated one.
They added: “As it stands at the minute, we’re completely restricted around incentivising customers to improve the properties by giving them either a cashback or a better rate.”
The event closed with lenders making a commitment to make green mortgages more competitive on rates and to lobby industry bodies for change.
