Product availability is at 76 per cent of pre-pandemic heights and at its lowest since September 2021.

James Tucker, CEO, Twenty7Tec said: “From end June to end July 2022 we saw the largest monthly drop in real terms (and in percentage terms) of mortgage products available since the pandemic-induced handbrake stop in March 2020 which saw the removal of around 3,000 products almost overnight.”

Tucker said the greater concentration of fixed rate mortgages continued to rise with average combined salaries for homebuyers also on the increase to £69,801. Searches for properties worth over £1m also fell 2.7 per cent.

Twenty7Tec’s July mortgage index suggested mortgage broker searches rose by almost nine per cent, ahead of the holiday season.

Searches for green mortgages also continued to climb, but Rob Derry, MD, Brunel Mortgages and Loans, said: “This is something we’re looking at in quite a lot of detail, but the issue is that only a tiny proportion of the housing stock qualifies for an A-C rating. As such, the mortgages aren’t that popular or available to a wide audience anyway.”

He added: “Lenders might do better to offer further advances or refinancing then reward customers with a green mortgage after works have been completed to a B or C standard.”

Buyers are becoming more conscious of green features and will try to negotiate discounts on the asking price of homes with the poorest Energy Performance Certificate (EPC) ratings in the next 10 years, it predicted.

Homeowners who have made green improvements before selling have made as much as 16 per cent extra on average, compared to those who haven’t made any improvements, Rightmove said.

The online property portal said the number of buyers searching for green terms rose from 500th to 98th most popular keyword search, while heat pumps – which are used to make homes more eco friendly – rose from 1,000th to 190th.

The biggest incentives for homeowners to make green improvements are reducing their energy bills, 89 per cent, improving insulation in their home, 55 per cent and reducing their carbon footprint, 49 per cent.

Government proposals for landlords to improve homes up to an EPC rating of C would lead to further stock shortages and rising rents in the short-term, with one in five landlords saying they would sell up.

Net zero homes

Making homes greener is a critical part the UK’s goal to reach Net Zero by 2050, but Rightmove found there was a lack of understanding about what improvements to make and minimal financial incentives to do so. 

While four in 10 homeowners , 41 per cent, had already made changes to improve their home, for the remaining 59 per cent the biggest reasons for not doing so are was because they did not feel they need to make improvements or the renovations were too expensive. 

The study analysed over 200,000 homes listed on Rightmove that had sold twice, with an improved EPC rating the second time.

Those who had upgraded their rating from an F to a C added an average of 16 per cent to the price achieved for their home.

Moving from an E to a C banked sellers an extra eight per cent on average, and moving from a D to a C resulted in an average of four per cent extra.

Buyers are already becoming more conscious of green features when looking for their next home, with features such as solar panels and heat pumps climbing the rankings in Rightmove’s keyword sort tool. 

Plus, there are now 73 per cent more green terms such as ‘sustainable’ and ‘low carbon’ being used by agents as selling points in their property descriptions on Rightmove compared with the start of 2020.  

There are early signs that better-rated homes could sell more quickly than poorly rated ones. EPC B-rated houses were the fastest type of home to sell over the last few months, overtaking EPC D-rated houses for the first time although the difference so far is only one day quicker.

The average EPC rating of a home in the UK is a D, so the homes with the lowest ratings of an E to a G are likely to be the first to start seeing buyers trying to negotiate discounts.

Tim Bannister (pictured), director of property science at Rightmove said improving a property’s green credentials was critically important but the immediate challenge was the costs involved to fix the number of properties currently below an EPC rating of C.

He said: “There has been much debate about what could happen in the future to homes with poor energy efficiency, and the government has said it will make sure these homes can still get mortgages. But I don’t think it would be a surprise if in 10 years’ time we see that people taking out mortgages or remortgaging a home with the lowest EPC ratings find that they miss out on the best mortgage rates.”

“If the government brings in legislation for landlords to improve their properties, and if the sums don’t add up to make the improvements, then some will sell up. This is especially likely among those with smaller portfolios and those who would need to make significant changes to cheaper homes. If a number do sell up then it could exacerbate what is already a severely stock-constrained rental market, increasing rents for available homes in the short-term, before the benefits of greener properties filter through.”

EPCs as the ‘new broadband’

Kate Eales, head of regional estate agency at Strutt and Parker’s, said “where poor broadband became a common deal-breaker in recent years, good sustainability credentials are rising up the consideration list”, especially in the face of rising energy prices.

She added: “That said, houses are ultimately homes and character continues to hold huge value for many. What remains to be seen is how affordable and straightforward sustainable changes to period properties will become in the longer term, as this will ultimately help preserve the value of historic homes.”

“If buying a home was purely a financial decision, a house with a strong EPC would be top of the list. But a purchase of a period home is often driven by the heart, and not just the head. EPCs create more transparency so buyers know what’s what when they become the custodian of an older home. We’re beginning to see increasing numbers of sustainable new homes and schemes built in a period style.

“These sustainable character homes have seen growing popularity in recent months – perhaps signalling a confluence of the nation’s adoration of quintessential looking houses with the rise in cost of living and greater eco-consciousness.”

The society said the enhanced range built on its support for sustainable and energy efficient projects and was being introduced against a backdrop of increasing mortgage rates and the wider cost-of-living crisis.

Ecology’s self-build mortgage starts with an initial rate of 4.65 per cent while construction works are underway.

This rate changes to 4.99 per cent from 1 August and on completion of the works, borrowers are eligible for a C-Change discount of up to 1.50 per cent. This is based on the Standard Assessment Procedure (SAP) rating in the Energy Performance Certificate (EPC) or if the property is accredited to the exemplary AECB Building Standard or Passivhaus standard.

The changes also include the addition, for the first time, of dedicated discounts for homes built to a SAP rating from 100 to 109 and SAP ratings of more than 110, of 1.00 per cent and 1.25 cent respectively, which Ecology is calling A+ and A++. This reflects the environmental performance of homes built to a standard that generates more energy than they consume.

Ecology said the discounts were designed to incentivise and encourage borrowers to build their home to a better energy efficiency rating leading to a long-term saving in both energy and borrowing costs.

New range of C-Change Sustainable Homes discounts

Building regulations require that a SAP calculation and a predicted on construction EPC is submitted for new dwellings prior to building work commencing.

The decision to enhance the discounts comes at a time when the government is recognising the need to reduce the carbon impact of house building and has stated that new homes much reduce carbon emissions by 75 per cent by 2025.

Ecology offers staged payments for self and custom-build mortgages which allow wide range of construction techniques including those using non-standard materials and modern methods of construction. `

The mutual also offers a renovation mortgage where a property is being purchased for renovation or retrofit. They will consider lending on homes in any condition, as long as the works required improve the energy efficiency of the property. On completion of the renovation the society’s retrofit discounts apply.

Daniel Capstick, mortgage manager at Ecology, said: “Now more than ever it’s important that lenders play an active role in incentivising green building and helping to reduce energy bills. We’ve been leading the way on sustainable mortgages for over 40 years, and we hope that the updates to the C-Change discounts will encourage our borrowers to build even more energy efficient homes, which is critical in the fight against climate change.”

The bank’s green additional borrowing is supported by its energy saving improvement tool which has been developed in partnership with the Energy Saving Trust, to help consumers find ways to save money on their energy bills and become more sustainable.

Eligible Co-operative Bank, Britannia and Platform mortgage holders can use the bank’s tool to create a personalised energy saving improvement plan and access a green additional borrowing product.

The Co-op’s products are available with no fee, either a two or five-year fixed term, at 60 to 85 per cent loan to value (LTV) with interest rates starting at 2.94 per cent.

Borrowers also need to use the energy saving improvement tool to generate a plan, which they can use as evidence, to ensure they use at least 50 per cent of the loan on renovations to make their home more sustainable.

The tool is free to use and gives consumers advice on how to make their home more energy efficient.

It provides a list of improvements that can be made to reduce energy bills, carbon emissions or raise the property’s Energy Performance Certificate (EPC) rating.

The tool can then provide an estimated cost for making the changes with flexibility allowing plans to be tailored based on the customer’s budget, which can be downloaded or sent via email as a PDF.

John Ward, director of products at The Co-operative Bank, said: “It is clear that climate change is a major worry for UK consumers and a concern we share with our customers. Tackling this important issue continues to be a priority for us and why we have launched our green additional borrowing products, supported by our new energy saving improvement tool.

“These two initiatives work together to help customers identify where they make investments to improve their home that will have the most benefit to the environment whilst also reducing their energy usage which in turn could mean lower bills at a time when costs are increasing, but also reducing this for the longer term.”

Mark Foskett at the Energy Saving Trust, added: “We’re delighted to have worked with The Co-operative Bank to create the online energy saving improvement tool for their customers. Now is a crucial time to support homeowners with long-term energy efficiency recommendations, allowing them to take action on climate change while saving them money on energy bills.”

Starling Bank bought specialist buy-to-let lender Fleet Mortgages for £50m in July 2021, bringing its first chapter as a warehouse-funded lender to a close and opening the door to its bank-funded era.

In February this year, Bob Young retired after he and the team almost doubled lending to £782m over the 2021 financial year and new CEO Mike Lane was appointed. He admitted the change of title from chief operating officer hasn’t made seismic changes to his day-to-day, but that the umbrella has certainly ‘got bigger.’

“Suddenly, you’re very aware of the responsibilities, which are much greater to be honest with you. I’ve been really excited by the opportunity to actually do it. I’m engaged in taking the business forward and I have a vision in terms of where I want to take it. We built a really good business in the first place, so it’s not as if we’ve suddenly had to change direction.”

Starling’s chief executive, Anne Boden, called the Fleet Mortgages acquisition the start of its move into mortgages as an asset class and the bank bought a £500m mortgage portfolio from Masthaven earlier this month. The bank was also reportedly among the bidders for Kensington Mortgages which Barclays agreed to buy at the end of last week.

A quarter of Fleet’s 2021 business came from portfolio landlords and half from limited company applicants. The ‘acquisitive landlord community’ drove growth on the purchase side last year to 42 per cent of overall lending, with a higher proportion of its business coming from the Midlands and the North than ever before.

On any changes brokers might see from diversified funding lines, CEO Mike Lane confirmed Fleet sees plenty of road ahead to increase volumes in its current specialism and has ‘no immediate plans’ to edge toward mainstream residential mortgages or the other direction into more specialist areas like bridging.

“We’re good at what we do in terms of the specialist buy to let stuff and there’s plenty of scope for us to increase volumes. We haven’t exhausted where our expertise is yet before needing to do that,” said Lane.

He added that Fleet has plenty of interesting discussions in-house about where lending might go or the opportunities Starling might see, especially as the bank is heading toward an IPO in the short-term. However, he said: “We just don’t have the bandwidth to leap into adjacent markets, despite growing and recruiting – we’re up to 130 full-time employees right now. We don’t want to take our eye off the ball.”

CCO Steve Cox said preserving service in line with growth was paramount.

“Probably at least half of what we do on price is about capability to process and preserve service. So at times in the last couple of months, probably as we go through the next few weeks, we will go up in price, not necessarily due to pure commercial pressures, more that if we get left holding the baby service will fall over and then all the hard work goes out the window,” he said.

“What we’ve seen particularly in the last six months or so, is that a lot of the capital market funders have drifted out of the market. They’ve drifted out because of market rates. We’ve stayed in the market. So your bank based lenders have drifted towards the top of the pile, if you like, in terms of the major competitors in the market at the moment

Outlook for buy to let

On the coming year, Cox said all the macro-economic factors including the lack of social housing point to a strengthening backdrop for buy to let.

“When the economy and life are uncertain, tenancy demand rises. Either people can’t buy property or are unconfident to buy and as interest rates rises, that will take people out again on affordability.”

“People have got to live somewhere. It’s as simple as that,” he added.

Cox said landlords are manoeuvring to capitalise on superior rental yields in the Midlands and northern university towns, or Houses of Multiple Occupation (HMO), because landlords can’t get the same capital growth in the South East.

The green drive to decarbonise housing stock to the required A to C Energy Performance Certificate level and the subsequent remortgage push is an opportunity for brokers, who can advise landlords on how to restructure finances to drive renovations, said Cox, wherever the final deadline for the work ends up.

He added that advisers are the only people in a position to do the discovery work for portfolio landlords and discuss the ability of lenders to offer further advances, which warehouse lenders can’t under their funding agreements, adding that a Fleet-to-Fleet remortgage option is currently under review.

Fleet expects there to be an extension to the PRS’s deadline of 2025 for the green rehabilitation of all buy-to-let housing stock. Plenty of landlords are taking on the work, others might simply try to sign a rental agreement extension the day before the deadline to swerve it, but it is creating an energy that’s just going to ‘keep galvanising the market,’ said Cox.

Natwest has increased rates on its two and five-year fixed-rate residential and buy to let (BTL) products.

Changes include a 0.18 per cent increase to its two-year fix purchase product with a £995 fee at 60 per cent loan to value (LTV), where the rate has risen from 2.64 per cent to 2.82 per cent.

At 85 per cent LTV, the two-year fixed purchase deal with no fee will increase from 3.01 per cent to 3.19 per cent, and at 90 per cent LTV the equivalent will rise by 0.2 per cent to 3.24 per cent.

Changes to Natwest’s five-year fixed rate purchase products include the 60 per cent LTV with no fee which increases by 0.19 per cent to 3.16 per cent, and on 90 per cent LTV, also with no product fee, a rise from 3.09 per cent to 3.25 per cent. 

BTL products where rates have increased include Natwest’s two-year fixed rate purchase 60 per cent LTV deal with a £995 fee, which was 2.69 per cent and is now 2.87 per cent. The two-year fix at 75 per cent LTV with a £1,495 fee has increased by 0.19 per cent to 2.63 per cent. 

On its five-year fixed BTL purchase product at 75 per cent LTV, with a fee of £1,495, the rate has increased by 0.19 per cent to 2.78 per cent.

Rate changes on its green mortgages include two-year fixed purchase product at 85 per cent LTV, which increases by 0.2 per cent to 2.85 per cent. This has a product fee of £995.

The two-year fixed green remortgage at 75 per cent LTV with a £995 fee has seen the rate has increase by 0.27 per cent to 2.74 per cent.

Virgin Money

Virgin Money said all exclusive fixed rates will be withdrawn at 8pm on 15 June.

The lender has also increased all fixed term fee-saver products by 0.20 per cent, with the exception of its 65 per cent LTV two, three and five-year fixed fee-saver deals which will increase by 0.10 per cent.

The lender has expanded its green mortgage range to include large HMOs, which it defines as up to eight bedrooms, and MUBs of up to 10 units.

The large HMO and MUB product available up to 75 per cent loan to value (LTV) and is fixed at 4.39 per cent for five years. It comes with a 1.25 per cent fee, one free standard valuation and no application fee on both purchases and remortgages of properties with an energy performance certificate (EPC) of C or above.

A green product for standard properties in the F2 range, which is aimed at applicants with some historical credit blips, is available up to 75 per cent LTV, fixed at 4.24 per cent for five years. It also comes with a 1.25 per cent fee, one free standard valuation and no application fee for both purchases and remortgages of properties with an EPC of C or above.

The product fee on the large loan product in FHL’s F1 tier, which is for clients who just fall outside mainstream criteria, has been halved to one percent.

The large loan product is now priced at 3.99 per cent fixed for five  years and available for maximum loans of £2m up to 65 per cent LTV.

As with all Foundation’s green mortgage range, the green large HMO and MUB product and the green product are both eligible for ‘early remortgage’ after purchase, as opposed to a six-month wait. This feature is specifically designed to help those landlords who may have carried out improvements on the properties to raise the EPC above a level C.

The rental cover for five-year fixed rates is calculated at pay rate, and stress tested at 125 per cent for limited companies and basic rate tax payers, and 145 per cent for other landlord types.

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. 

As individuals, we are more aware of the impact we can have on reducing carbon emissions, but one area that isn’t necessarily as prominent is the effect housing has on the environment and the option of a green mortgage. 

What’s it all about? 

According to government figures, UK housing is responsible for a quarter of the nation’s carbon emissions yet over a third of UK households haven’t adapted the way they use energy over recent years. 

So, environmentally friendly mortgage products make sense. A green mortgage is one that offers preferential terms if the property meets certain environment standards, typically an energy performance certificate (EPC), otherwise known as an EPC rating, of A or B, or where the property has been improved and moved to a C rating. The borrower can buy an energy efficient property or develop their existing property to meet the required standard to qualify.  

Availability and attitude 

Knowledge, awareness and funding are crucial if change is going to take effect. When the Mortgage Advice Bureau surveyed consumers, over two thirds had not heard of a green mortgage, despite the benefits.  

Interestingly, 40 per cent said they would not pay more even knowing it would help the environment. Many homeowners also cannot afford to make the changes required to improve the properties EPC rating.  

Regarding availability, only around 20 mainstream lenders offer green mortgages, which tend to focus on A and B rated properties, which represents only a fraction of the marketplace. The green products tend to get ‘lost’ amongst the thousands of other mortgage products that exist. 

Market landscape 

The government is in the process of making a series of recommendations to both lenders and housing developers.  

The Bank of England also began climate-related stress testing on UK banks in 2021. Existing borrowers, homeowners and landlords are being encouraged to invest, to make their homes more energy efficient. Analysis by Rightmove in June 2021 found that 59 per cent of the 15 million homes in England and Wales were D-rated or below.  

Over half of the 15 million homes in England and Wales, which are D-rated or below, could reach a C rating with some investment. For context, only three per cent of the UK mortgage market has an EPC rating of A or B.  

The UK Climate Change Committee estimates that £250bn needs to be invested in home upgrades by 2050.  

What needs to change 

It is clear significant funding needs to be made available for consumers to make energy efficiency improvements to their properties. In 2019, the Conservative government committed over £9bn of investment to retrofitting homes across the UK to improve their energy efficiency.  

These funds will target the 15 million homes that are D-rated or below and open up the green mortgage market, driving consumer awareness and interest in these innovative products. 

Without government funding, many consumers will not be able to afford to make changes to their properties, which in turn may impact the availability of green mortgages. But given the focus on sustainability, it’s increasingly likely that the growth in this market will be significant. 

Financing the transformation of the UK housing market needs to focus on making it easy for existing homeowners to make the alterations required. This will help increase green mortgage options for consumers and importantly reduce carbon emissions through driving behaviours leading to lower carbon emissions in aggregate for the UK housing market.  

Green mortgages will likely be an area of growing interest to lenders, brokers and clients over the coming years. 

In the third panel debate video, sponsored by Accord Mortgages, Liz Syms, founder of Connect Mortgages and Connect For Intermediaries said although it may seem like ‘more of the same’, the industry can be guilty of thinking all customers are aware of the potential of limited companies because of the continued debate.

Syms said: “I picked up a call from another broker company. I had a conversation with a customer about to buy his eighth buy-to-let who still hasn’t had a tax conversation and was about to buy it in his personal name.”

She added that we could begin to see another customer segment emerge including buy-to-let investors deliberately targeting properties below an A to C Energy Performance Certificate rating planning to refurbish up to and beyond a C standard to increase the investment value.

Greg Cunnington, COO at LDN Finance said the holiday let market may have initially looked like a pandemic phenomenon but enquiries continue to grow representing another opportunity, with Jeremy Duncombe, MD at Accord adding that new build is another area the lender expects to thrive, despite the further supply and demand challenges that may bring.

Watch the rest of the debate in the video above now.

Watch parts one and two of the buy-to-let debate below.

Part one: Our panelists brainstorm the buy-to-let product gaps

Part two: On the green EPC deadline and the refinancing opportunities

Sponsored content created on behalf of Accord Mortgages. For intermediary use only.