Some lenders are working with organisations such as Sero to gain a better understanding of the environmental risk and impacts of the homes they lend on to create suitable finance options outside of and in addition to the typically used EPC rating.
So this week, Mortgage Solutions is asking: Is it time for lenders to collectively adopt a more comprehensive approach to climate change and environmental factors to successfully work towards green initiatives?
Jane Simpson, managing director at TMBC
Data published by the Business, Energy and Industrial Strategy Committee highlights how domestic properties are responsible for approximately 19 per cent of greenhouse gas emissions.
It is unsurprising then that tackling the environmental impact of housing is a significant focus of the government’s drive to net zero.
Although the entire industry has a responsibility here, lenders are well placed to make a positive contribution. For example, valuations and underwriting that place emphasis on the environmental impact of a property help to make sustainability an important consideration for buyers.
Incentivising the purchase of homes with EPC ratings A-C with green mortgages supports this and while it is fantastic to see an increase in such products, it is also important to note that a substantial proportion of existing private rental sector (PRS) stock will need to be upgraded to meet the government’s proposed standards.
This means that opportunities exist for lenders to launch innovative refurbishment products, or bridge-to-let options, for example.
A substantial number of homes are unencumbered or have not changed hands for many years, raising questions around the reliability of EPC ratings.
Even if we were able to accurately assess the number and extent to which properties need upgrading, the current issues around labour and materials may mean it is simply not possible in time to meet the government’s quickly approaching deadline.
While there is clearly lots that the PRS can do, I feel it is a responsibility that should be shared – by making changes and using less energy in the first place. We can all lessen our impact on the environment.
Jonathan Clark, mortgage and protection adviser at Fairstone Wealth Management
Until now, the majority of UK homeowners have had little interest in, or knowledge of the environmental impact of their homes.
But this is surely set to change with the increased focus brought about by recent events such as the COP26 conference and the soaring cost of heating any home.
We’ve recently seen the emergence of so-called ‘green mortgages’, these offering a marginally lower rate and/or modest cashback on more energy efficient homes but this is based purely on a crude EPC rating and acts more as a modest reward, rather than a true incentive.
In order to modify a potential purchaser’s behaviour when they’re choosing a new property, there needs to be a significant, meaningful and long-term benefit to the consumer if they were to choose a more environmentally friendly home – how much are they likely to save each year?
Could this mean a lower mortgage interest rate for the long-term, and how much could this save them? If it’s a new property – what was the overall environmental impact of its construction and materials used?
So, what part can lenders play here, and what’s in it for them? Well for starters, they could get together and agree to be more flexible in the type of property they are prepared to mortgage – supporting more ‘non-standard’ construction types, self-build and long-awaited ‘modular’ builds pioneered by L&G as these tend to have a much lower overall environmental footprint.
Many of today’s purchasers are now driving around in electric cars, and they’re going to want to park them in front of an equally ‘statement’ property.
Jonathan Stinton, head of intermediary relationships at Coventry for intermediaries
With the green debate high on the global agenda, it’s becoming increasingly clear that nations need to work together if we are truly going to be able to combat climate change.
In the same vein, collaboration is essential between all parties in the mortgage market – brokers, borrowers and lenders, as well as the government and local authorities.
Whilst collaboration is vital, however, it doesn’t mean that all lenders have to adopt identical approaches. Each lender will be guided by their own plans, appetite and back book, and for many the move to becoming ‘green’ will be a journey, with propositions and products evolving over time.
It’s important to look beyond the relatively simplistic view of EPC bands. Whilst EPC ratings and Standard Assessment Procedure (SAP) scores are a way for us to measure energy efficiency, they shouldn’t be the main point of focus.
They are a useful indicator for homeowners to understand the energy efficiency of their home but they don’t provide any actionable insights. Each homeowner will have their own needs and circumstances, and tailored support on the initiatives and improvements that are most appropriate would be far more beneficial.
A one-size-fits-all approach to simply reach a target rating therefore seems rather short-termist.
EPC ratings don’t take into account many other factors that affect energy consumption, such as how many people are living in the property, or how they’ll choose to use the property. An EPC won’t reveal whether the windows will be left open all year round while the central heating is on, or if the property is only going to be occupied in the warmer and lighter summer months.
Whilst some home improvements will require a significant financial investment upfront, that may take several years for homeowners to realise the longer-term financial gains, there are smaller changes people can make to improve their homes’ energy efficiency more immediately. And the industry has work to do on educating homeowners about these, too.
