Speaking in a fireside chat at The Mortgage and Protection Event at AJ Bell Stadium in Salford, finance partnerships manager at Sero Cerys Williams (pictured, right) made it clear that brokers were fundamental in advancing green mortgages.
She said: “You guys are the trusted fountains of knowledge, and you are the ones that need to start planting the seed. It may not be that you’re trying to sell them a mortgage this time, but surely it’s within your interest and theirs for them to understand that mortgages today are just dipping a toe into energy efficiency.
“But mortgages in five years’ time, if you haven’t got an energy efficient property to either sell or to buy, how will that potentially impact the rates or the saleability of your property?”
‘Green premium’
Williams noted that there was a emerging “green premium” for energy efficient homes, with a growing value differential between more and less energy efficient properties.
“At some point that green premium, or the energy efficient qualities of those homes, will become the norm and people will expect that as a standard. So, those properties that don’t keep in step and that don’t undertake the retrofit measures will then be discounted, so they won’t retain their value,” she explained.
She added that lenders were already looking at the “transitional risks within their back books or looking at properties that could become stranded assets”.
“I would hesitate to say unmortgageable, but would they be unfavourably mortgaged potentially.”
She noted that brokers were fundamental in delivering the message around green mortgages.
Green value gap emerging
Andy Mason, head of strategic partnerships and housing at Lloyds Banking Group and fireside chat host, said that properties becoming unmortgageable due to energy efficiency, or becoming “energy prisoners”, was the “last thing we need” but there was a “emerging gap” in value of G-rated properties and A-rated properties.
“To an extent you probably need that because how else do you encourage people to take action to improve their properties unless there’s value back from it. So, I think the natural outcome will be that certain G-rated properties may be worth a lot less than a similar A-rated property.
“The bad bit about that is if the G-rated properties are owned by the people who just can’t afford to do anything, and they become stuck. That for me is where the government needs to support and help people who are genuinely struggling.”
Net zero target means retrofitting crucial
Williams continued that the UK government’s commitment to be net zero by 2050 is ambitious, explaining that with 27 years to go until 2050 and around 27 million properties in the UK, there were a million properties a year that needed to be retrofitted to meet the target.
She added that this was equivalent to around 19,000 properties a week that needed to have improvements.
“I think [we] know that 19,000 properties a week are not being retrofitted at the moment. So, for every week that we goes on not retrofitting, we’re just getting into a bigger and bigger deficit.”
Williams said that there was a “mass education piece” that needed to be undertaken as “most people are blissfully unaware that there is a problem”.
“I’m sure that homeowner occupiers across the UK probably don’t realise that there is an onus on them to decarbonize their properties by 2050,” she added.
Williams noted that the Prudential Regulatory Authority wanted annual reports on the impact of risk and climate on lender’s back books and that they should report a 70 per cent reduction in greenhouse gas emissions by 2035. She noted that this meant that occupants of these properties need to cut emissions by this amount.
EPC legislation is a ‘big ask’
She continued that the upcoming Energy Performance Certificate (EPC) legislation, which could mandate that new tenancies need to have an EPC rating of C or above by 2025 and existing tenancies by 2028, was a “big jump” and a “big ask.”.
“We’re already placing mortgages for buy-to-let landlords that are likely to see that turn. So, when those properties come to remortgage, will their property still be compliant? Will they be an asset for that landlord to be able to retire?”
Williams continued that lending figures for this year alone showed there were £660m worth of buy-to-let mortgages, and with 67 per cent of private rental sector having an EPC rating of D or lower, then this year alone there could be £444m of mortgages that will not be compliant with legislation.
However, she said that a lot of solutions for energy efficiency were available, and many of them had been on the market for several decades.
“We have the solutions. A lot of these are established technologies that have been installed for the last 20 or 30 years. They’re tried and tested.”
She said that there were some “newer technologies” and there will be developments and new technologies but the “worst thing we can do is nothing”.
Williams pointed to Bank of England stress tests, which showed that if the UK deferred net zero targets by 10 years, then it would cost £100bn in additional costs, and if there was no action that would increase to over £350 in extra costs.
The Mortgage and Protection Event continues in Birmingham today, moving on to Southampton and London next week. Register here for your free delegate pass.
