The proposals, which have yet to come into law, mean landlord’s properties should have an EPC rating of C or higher by 2025.
Generally, green mortgages aim to reward customers for making their properties as energy efficient as possible, preferably achieving an Energy Performance Certificate (EPC) rating of C or higher.
However, brokers have expressed doubts about the current benefits offered by green mortgages, and have made a few suggestions about what more needs to be done to make ‘going green’ more enticing for their clients.
In this week’s Marketwatch we address green mortgages and their impact on the market, borrowers and the environment.
Matthew Fleming-Duffy, director at Cherry Mortgage and Finance Ltd
It seems to be legislation that’s driven the market to create green mortgage products, as most people don’t ask for a green mortgage when enquiring about their borrowing options. Britain has a long way to go before these products really gain traction, but further legislation may be necessary to ensure homeowners are encouraged to transition away from fossil fuels.
It’s great to see lenders picking up on it though. Saffron Building Society, for example, is offering a two-year fixed rate at 2.07 per cent up to 80 per cent loan to value (LTV). The Green Mortgage Hub – launched by the Green Finance Institute at the end of 2021 – currently lists 36 products which offer financial incentives to owners or purchasers of energy efficient properties.
Landlords may feel particularly under the cosh, but they are particularly well-served in the market now with better pricing being offered by several lenders for properties that are energy efficient.
They are facing fines for non-compliance with the Minimum Energy Efficiency Standards legislation, and generally being unable to remortgage if their properties have an EPC rating below E. However, replacing halogen lightbulbs with LED bulbs and insulating the walls and roof are simple, low-cost ways to improve a property’s EPC rating. More expensive solutions like double-glazing and installing a new boiler may become essential as the government drives its legislative plan, which may mean some landlords decide to sell rather than consider such a cash outlay.
Lewis Shaw, founder at Shaw Financial Services
Green mortgages are a gimmick, a way for lenders to jump on the green bandwagon to get some of the kudos that goes with being a responsible and caring business pretending to care about climate breakdown and ecological collapse. They’re trying to prove they’re doing something positive about climate change, yet, at the same time, the big six and others are still bankrolling and investing in fossil fuel extraction and the fossil fuel industry – the same industry that has caused, and is continuing to cause, environmental destruction. Talk about bait and switch.
The majority of green loans are for category A or B properties, which is fine on paper, but it’s a load of rubbish in practice because the new properties are actually built to poor standards. Most of the time the properties are still under construction when the EPC surveyors are looking at them and therefore make much of the rating up on assumptions based on current construction methods and principles, not through a proper post-build check.
The reality is that not a lot of these new homes are actually as energy efficient as we’re lead to believe. I suspect that once these sites are built, if you got an assessor out there they would be fine if they’d been built to the book, as you’re meant to, but new builds are notorious for having problems with the standard of development. They may have green mortgage labels on them but they’ve got heat holes all over a lot of them.
In that respect the green mortgages are almost exclusively for new builds, but they’re not a true reflection of the reality.
We need to overhaul the listed building status rules to allow owners to make old buildings more energy efficient. It’s great having all that history, but if we can make subtle yet efficient changes to them we’ll be able to fight the climate catastrophe instead of contribute to it while still enjoying their aesthetics.
Furthermore, the UK accounts for a very small amount of the world’s emissions without including our global footprint from imports. Around 40 per cent of our energy use is directly related to housing, but it’s such a small amount on a global scale, especially when the big six who are giving out “green mortgages” continue to lend billions to fossil fuel companies – it’s absolute nonsense.
Imran Hussain, director at Harmony Financial Services
Right now, I feel green mortgages have very little impact on the environment. Green mortgages could be perceived as a bit of decent PR by lenders right now as they aren’t really available to anyone purchasing an older property due to the EPC requirements as millions of UK homes will struggle to achieve a C or higher, so the market is pretty much just new builds.
It’s a great idea to encourage people to be more eco-friendly and that initiative is good, but we need government buy-in to ensure that all the properties in the UK are involved, not just new builds.
Whether or not a mortgage is green does not influence affordability in the slightest as clients’ borrowing is driven by income and current debts, but what is advantageous is the rates being ever so slightly lower so can save the borrower a few pounds per month. It’s a case of whether people have that money to invest, and many people don’t.
But, the government could give or lend £10,000 per house hold to be spent on energy improvements that would have to be proven to be spent on the home through receipts to avoid fraud, much like work expenses. They could simultaneously invigorate British manufacturing through providing specific grants for windows or home improvement products that are manufactured in the UK, making triple glazing cheaper because it costs thousands, as a long-term solution that also encourages British manufacturing and creates more jobs.
The government has reduced taxes on energy efficiency, so why not put a tax break or rebate on things like insulation and solar panels for lofts and walls? It needs to be worth the time and resources to make a property more energy efficient for the individual.
They could subsidise pensioners’ homes, keep the elderly warm and when they move or pass on it will still be a C for the next person.
The type of property matters too – with older properties there’s only so much insulation that can be installed, and insulation will have eroded over time unnoticed. If you’ve got a homeowner in a terrace then there are different things that they can do, or afford to do. They won’t be able to put up solar panels for example as they’ll end up on the neighbour’s roof, but rewiring with more energy efficient wiring could be an option.
Lenders could do something similar, but they have the problem that everything is about affordability. They could have a charge on the home, but not side-step Mortgage Market Review (MMR), to be sure that from a lender perspective it can be justified.
Ultimately we don’t want pensioners using their savings on home improvements, so if the government could match a limited low LTV loan, like they do with Gift Aid, then consumers could pay it back at capped low interest, like the base rate, or one per cent fixed, as the money would be deemed cheap. It could be a separate loan guaranteed against the property, or a charge on the property so the lender gets the money and interest back when the place is sold.
Rob Peters, principal at Simple Fast Mortgage
Green mortgages offer eco-conscious borrowers an ethically appealing mix of reduced fees and interest rates combined with a sense of ‘doing their bit’ for the planet. Ultimately the mortgage has nothing to do with it – it’s the property that’s green.
I don’t think that the incentives provided by green mortgages at the moment are really worth the investment. The key thing is that if the work you do is going to provide long term benefits and cost savings then it’s worth it, so you should look at the green mortgage incentives as a bonus, rather than the main reason to do.
We recently placed an investor in Scotland with a green mortgage. He was an expat with two properties, one was a B and one was a C rating. He took a green product deal on the B-rated property and it provided 0.75 per cent saving in lender fees, a 0.15 per cent lower interest rate and £500 cashback. Overall, the client was almost £3,000 better off over the five-year term based on the loan amount.
But the question was whether it was worth him bringing the other property up to a B and it just wasn’t worth it. It would have meant disturbing the tenants and the building costs would have been more than £3,000 incentive, so he went with a different option and dodged the hassle.
