Green mortgages: The seeds have been sown, but more needs to be done to reap the benefits
By Craig McKinlay, new Business Director, Kensington Mortgages
The urgent nature of the climate crisis is apparent. Not a day goes by where we don’t see a worrying story, and for a good reason. The earth is warming up at an alarming rate and more action needs to be taken.
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 needs to begin tackling 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. 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 housing secretary, Robert Jenrick, unveiled a new green standard to bring an environmental revolution to homebuilding.3 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.4 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.5 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.6 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.7
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.8
This is where Kensington’s eKo Cashback Mortgage comes in. Launched last year, it offers up to £1,000 cashback for improvements homeowners make to the energy efficiency of their properties within the first 12 months of ownership.
Kensington’s commitment to the green transition doesn’t stop there. In May 2021, we also announced another green product that rewards borrowers for purchasing an A or B EPC-rated new-build property by doubling the cashback available at purchase compared with a regular cashback product.
Kensington also recently 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.
As a lender, Kensington is committed to sustainable lending. We hope that through these innovative products we can encourage customers to address their energy efficiency and other lenders to follow suit and together tackle the challenges of improving our country’s housing stock. As awareness of the climate crisis increases and more lenders plan to roll out similar schemes, there are reasons to be positive.
Ultimately, while green mortgages are only part of the solution, growing awareness and a greater understanding of housing’s role in combating climate change are positive indicators that things are changing.
To find out more or to place a case, get in touch with Kensington.
Visit www.kensingtonmortgages.co.uk/intermediaries/eko Call 0800 111 020
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