Speaking at the London Institute of Banking and Finance (LIBF) mortgage conference today, David Geale (pictured), director of retail banking at the Financial Conduct Authority (FCA), said green mortgages were relevant to the regulator because it protected consumers and promoted market integrity.
He said he wanted lenders to deliver on their net zero pledges to the benefit of consumers and said while there were benefits, there were also “several inherent risks”.
Geale warned: “I’ve already mentioned how significant emissions from mortgaged homes are to lenders’ decarbonisation strategies, and those lenders could face a variety of issues if they fail to hit those targets – reputational or otherwise.
“If lenders fail to develop credible plans to meet their stated decarbonisation targets, we are likely to take a very dim view – and it could be perceived by the market as yet another example of greenwashing.”
Referring to David Postings, CEO of UK Finance’s speech last month, Geale reiterated that lending to already efficient newly built homes would make a lender’s balance sheet greener but would not decarbonise the UK’s housing stock.
He said lenders taking on a “blinkered approach” and only targetting efficient properties could unintentionally make it difficult or expensive for people in less efficient homes to secure a mortgage even if the property has been significantly upgraded.
Geale said this could penalise people who are unable to make improvements without help and make them vulnerable.
“There is also a separate risk that innovation in products and incentives could run ahead of consumer demand,” he added.
Breaching Consumer Duty
Geale also said lenders should make sure any product labelled as ‘ethical’, ‘socially responsible’ or ‘green’ should be genuinely designed in that way and match any claims made.
He added: “If not, it is likely to be a breach of the Duty’s cross-cutting rule on acting in good faith. And this is before you consider if it meets the proposed ‘anti-greenwashing’ rule we’ve recently consulted on adding into the ESG sourcebook.
“So please think hard about your marketing and avoid hype just to join a green bandwagon.”
Geale asked lenders to consider how products would be distributed, whether benefits would depend on partnerships with companies such as suppliers of energy efficient products and whether products actually meet the needs of the target market.
He also urged firms to make sure the relationships with firms along the distribution chain did not serve their own needs before customers’, to ensure borrowers understand ongoing costs and to offer support over the lifespan of a product.
Geale added: “This may feel like a lot to take in – and we do appreciate some if it is new territory for you. It’s new territory for most of us, and it’s still evolving. But we are confident that you have the appropriate skills and judgement to continue delivering positive outcomes for consumers.”
Brokers not expected to be experts
Geale said he was aware that brokers were new to the opportunities green mortgages offered, adding: “They’re not energy efficiency experts, and we don’t expect them to become so.”
He said the Brokers Handbook which was published by the Green Financial Institute in February could be a helpful resource for brokers and give them the confidence to provide added value to their service.
Geale added: “We also want brokers to be empowered to support consumers in making appropriate decisions, tailored to their expressed needs and preferences.”
He noted that lenders offered different incentives which were dependent on various factors and said it “was not easy to compare them”, especially as some required an improved EPC rating and others called for specific renovations to be completed.
Geale said green mortgages played a “significant role” in reducing emissions from homes, meeting lender decarbonisation targets and added that this could be done without leaving homes unmortgageable or borrowers with large costs to improve energy efficiency.
He added: “Brokers do, and can continue, to play a pivotal role in helping borrowers understand what their options are, and where to turn if they need additional support to improve the energy efficiency of their homes.”
