More needs to be done to build the Green Mortgages sector
By Craig McKinlay, New Business Director at Kensington Mortgages
Open any newspaper or mobile news app and you will find a near constant flow of stories about extreme weather, the warming planet and the impacts of climate change on our lives. We are living through times that are frequently deemed uncertain, unprecedented or groundbreaking. But this is for good reason. Particularly in the wake of the COP26 summit, it is important to refocus on practical ways that we can all individually contribute to society and mitigate the threat of climate change.
As people become more aware of their role in helping to reduce carbon emissions, so too are businesses. ESG (Environmental, Sustainability and Governance) has become the great business buzzword of our age,
its importance being espoused from CEOs of global corporations to those founding start-ups or running small businesses. There’s an increasing awareness of how certain actions that may appear ‘small scale’ can impact our climate at a global level.
Amongst this trend is a growing understanding of the role that housing plays in terms of carbon impact. According to government figures, existing UK housing stock is responsible for one-quarter of UK carbon emissions. 1 The Citizens Advice and the Energy Savings Trust has also found that over a third of UK households, the equivalent to 9.7 million, have not changed the way they use energy in recent years. 2
The housing industry urgently needs to begin taking on this issue and improving the energy efficiency of our homes is one of the best ways to help the UK transition to a low-carbon economy.
The UK has made some big climate commitments. At COP26 in November, the government recommitted to ensuring that all new heating systems installed in UK homes are low carbon from 2035 3. And in 2019, the UK made the bold pledge to reach net-zero emissions by 2050. To help achieve this, the government introduced a £5 million fund to support the financial services sector develop green home products, in the form of equity loans and home improvement loans, and ex-housing secretary, Robert Jenrick, unveiled a new green standard to bring an environmental revolution to homebuilding.4 The Green Homes Grant Scheme (GHGS) was also launched in 2020, with £320 million allocated towards energy efficiency and low carbon heating schemes for lower-income households. For the mortgage industry, this funding allowed us to start creating products which incentivised the greening of one’s household, aka green mortgages.
While consumer awareness of green mortgages is a little low, with 43% of those surveyed by the Intermediary
Mortgages Lenders Association (IMLA) in 2020 having never heard of them, lenders and brokers anticipate a steep uptick in demand.5 IMLA’s report further states that three-quarters of lenders and over half of mortgage
brokers foresee demand for green mortgages growing over the coming years.6 Many borrowers also assume
green mortgages are more expensive than standard mortgages, whereas most of those soon to launch will be cheaper or priced the same as a traditional product.7 There’s a clear effort from green mortgage lenders to reduce barriers to uptake.
However, there are some constraints. While initiatives like the GHGS certainly get the ball rolling, increase consumer awareness and give borrowers an incentive to reduce their homes’ carbon footprint, they don’t have a widescale impact. Only an estimated 600,000 homes will benefit from the scheme. In March, the government announced that the scheme’s funding will not roll over into 2022 as planned, and it is
now thought that the scheme will be scrapped altogether.8
Most green schemes also centre on rewarding those who already have a good Energy Performance Certificate (EPC) rating rather than addressing the root issues presented by lower-rated, often older, housing stock. For example, Barclays offers a green mortgage which gives buyers access to lower interest rates when buying new-build energy-efficient homes. Nationwide gives borrowers loans of up to £25,000 for green home improvements, as well as offering preferential rates to those who buy new-build properties with an EPC rating of “A”. With approximately 17 million homes with an EPC rating below B and C, more needs to be done to incentivise homeowners to make small changes that can have a big impact collectively.9
This is where Kensington’s comes in. We stand out in the crowd of lenders touting their green credentials. One key distinguishing factor is our commitment to improve energy efficiency in homes, whether this be for new customers, those re-mortgaging or for landlords.
The eKo Cashback Mortgage, launched last year, offers up to £1,000 cashback for improvements homeowners make to the energy efficiency of their properties within the first 12 months of ownership. More recently the launch of the Buy to Let eKo Cashback mortgage allows landlords to go green too.
Kensington’s commitment to the green transition doesn’t stop there. We have also this year launched the New Build eKo Reward Mortgage which incentivises and rewards borrowers for purchasing an A or B EPC-rated new-build property with £500 cashback.
Further, earlier this year Kensington priced its latest Green Bond securitisation– the first green bond from a lender within the UK Asset Backed Securities market and the third issuer in Europe. Kensington will use the proceeds raised to continue developing its range of green products across the next few years, with targets to allocate more than £800 million to green loans by 2026.
Kensington is demonstrably committed to sustainable lending. We hope that through these innovative products we can continue to incentivise homeowners and landlords to address their energy efficiency as well as encourage other lenders to follow suit. This, we hope, will show that we can together address the challenges of improving our country’s housing stock.
Green mortgages are only one piece of a difficult jigsaw puzzle, but they are a significant one. A solution to the crisis we face can only come about with the growing awareness and a greater understanding of housing’s role in combating climate change which we are beginning to see.
To find out more or to place a case, get in touch with Kensington.
Call 0800 111 020
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