04 August 2021

The role of green mortgages in the push for a sustainable UK

There are many things to consider when buying a house and these things differ depending on what is most important to the buyer. Location, size, the number of bedrooms, the size of the garden, new or old? Many will choose to buy new and justifiably so.

Buying a new build home has multiple advantages. Buyers are able to move in with the peace of mind that little to no renovation will be needed and they can design the house how they please. There’s also addition comfort that the house will be covered by a warranty in case something bad happens. The buying process itself should also be a lot smoother given that there will be no chain involved. But something that isn’t always considered by consumers is the hundreds of pounds a year they could save on their energy.

New build properties are now built with energy efficiency in mind since the requirement for properties to have an EPC certificate was introduced back in 2007.  Whilst these properties are mainly ‘B’ rated today, further innovation will see more ‘A’ rated properties built from 2023. This will help contribute to the Government’s green targets. The UK has a legal target to bring emissions down to zero by 2050 and the improvement of domestic properties will go a long way in helping to achieve this. The latest statistics show that the residential sector is responsible for around 15% of the country’s greenhouse gas emissions1, so improvements to how well our houses can perform ecologically is a major contributor should the Government meet these targets.

And the UK Government has not hesitated to show its commitment to improving Great Britain’s carbon footprint. Although the short-lived Green Homes Grant proved ill-fated with only 10% of the 600,000 eligible homes signing up before it was halted in March of this year, there are other schemes which aim to improve residential properties’ performance. The Future Homes Standard aims to bring new homes up to world-leading levels of energy efficiency and although it isn’t being fully implemented until 2025, builders and housing associations are already looking at how these improvements can be made. But the burden must not lie solely with the house builders but we, in the mortgage industry, must also do our bit and a key instrument in doing this is green mortgages.

On the face of things, green mortgages should be highly attractive to consumers. They typically offer preferential rates, or a cashback offer when buying houses with an EPC rating of ‘C’ or above. Despite this, they are not yet as widespread or mainstream as they perhaps should be with only a small number of lenders offering such mortgages. But why is this?

Issues facing the surge for sustainability

As mentioned, the requirements for EPC ratings when buying, selling or letting houses was only introduced in 2007 meaning that a large majority of houses built before that time fall short of the requirements needed to qualify for a green mortgage.

It’s also believed that there is a lack of awareness among consumers that these types of mortgages exist which could account for a lack of uptake. Obviously, if the older stock of properties is to be improved and become more environmentally-friendly then consumers need to be informed of the advantages of improving their EPC ratings – a green mortgage being just one.

Also, one has to question whether the appetite is there in the first place? While it can vary person-to-person, having an energy efficient home may be further down the wish list for buyers with size, location and other factors taking precedent.

Outside of the green mortgage space, there are other issues concerning the housing industry regarding the production of energy efficient houses. It is well documented that there is a very large need for more housing in the UK and that supply is very much outweighed by demand.  However, housing associations are facing resource and capacity issues up and down the country meaning that they can’t build as quickly as they would like. In order to meet the growing demand for new, climate-friendly homes, we may see growth in the modern methods of construction (MMC) sector to help improve homebuilding efficiencies as well as keeping site overheads at a manageable level.

There’s also some concern in the surveying industry around the legitimacy of EPC certificates. A recent survey found that over 30% of valuers consider EPCs to be not accurate or reliable which means that the foundation on which we are basing the energy performance of our houses may not stand up to scrutiny.

What can the mortgage industry do?

The mortgage industry has a massive role to play in helping to reduce residential properties’ pollution and helping the UK become a zero emissions country by 2050. First and foremost, we should be doing our best to educate and inform borrowers on green mortgages and the advantages they bring. Making those advantages more tangible and putting the savings that can be made in pounds and pence may see green mortgages become more popular in future. Fundamentally, advisers have a role to play in making customers aware of the need to know their EPC rating and how best to improve it. Should the property already have an EPC rating, this can be found fairly simply via the Government website. If it doesn’t, there are a number of accredited assessors on the market that can help customers gain an EPC certificate for their home. However, those that want to improve their EPC rating may need additional borrowing and this is where advisers and the value of advice play a key role to help find the most suitable borrowing for the consumer.

Secondly is the fact that a green mortgage may not be the best or most suitable mortgage for the borrower. Current products offer up to £500 cashback (depending on the EPC rating of the property being bought) – but is this enough? Perhaps we can offer more lucrative incentives to ensure that a green mortgage is indeed the best solution for the consumer. Either way, the market should work harder to help make green mortgage a more mainstream option. Similarly, homeowners with an EPC rating of ‘D’ or below need to be properly incentivised to improve their properties. Could this be provided through the products offered by lenders?

Lender and brokers could also look to build their own green propositions which make it easier and more appealing for consumers to choose a green mortgage, partnering with EPC certificate providers to help raise awareness and potentially improve the standards to EPCs in general, helping alleviate the concerns that currently exist.

The UK has a long way to go and have a lot of improvements to make across a number of industries to tackle climate change and the mortgage and housing sectors are no exception. The market has an obligation to help drive better performance for houses, both new and old, while also providing the most suitable and affordable products for consumers. 

1 - 2019 UK greenhouse gas emissions: summary (publishing.service.gov.uk)