Do buyers actually care?
Lenders have a key role to play when it comes to educating consumers about the importance of Energy Performance Certificate (EPC) ratings. Although general consumer awareness around EPC ratings is high, EPC ratings remain important for only 30% of people purchasing a home, according to NatWest.
“This figure would undoubtedly be a lot higher if consumers were aware that low-rated properties are more likely to lose value over time as they become less desirable on the open market,” said Graeme Gillespie (pictured), head of consulting at Hometrack.
He added that there is even a risk that they become unmortgageable if regulations become stricter and a homeowner does not upgrade their property.
EPC ratings – lenders’ role
Gillespie believes that lenders have a crucial role to play in providing transparency for consumers and helping them to plan more accurately for the future when it comes to their home decisions.
“This is also a win-win for lenders as it provides them with an opportunity to identify the homes that need upgrading in their own portfolio and an opportunity to finance borrowers’ improvements,” he added.
In June 2019, parliament passed legislation requiring the government to reduce the UK’s net emissions of greenhouse gases by 100% relative to 1990 levels by 2050. As such, Gillespie said the importance of EPC ratings is only heading one way.
Green mortgage products
In addition, he believes it would not be difficult for lenders to develop products to encourage retrofitting and other improvements of older properties, and said existing financial products could be easily adapted.
“The main challenge remains, that most structural improvements, such as improved glazing, wall insulation or modern heating systems, have a payback period of between 10 and 20 years,” Gillespie said.
He added that consumers remain reticent to invest in improvements when they may not live in a property long enough to reap the benefits.
“If we truly want major growth in green mortgages, they may need to be accompanied by rewards that improve the payback of the investment,” Gillespie said.
Green mortgages in the UK – what is the outlook?
Gillespie said he has seen an increasing focus on green financing from both lenders and consumers in recent months.
Housing remains a major contributor to the UK's carbon and emission footprint, and he believes lenders recognise they have a major part to play in reducing that through finance options that encourage reductions.
“Most lenders now offer green mortgages, typically providing a small financial discount to a standard mortgage product,” Gillespie said.
However, he said the size of the green mortgage market remains small in comparison to the overall mortgage market.
“Critics also believe that the current range of green mortgages does not truly drive consumer behaviour,” Gillespie said, noting the qualifying conditions are often limited to minimum EPC standards and these are generally met by most new-build properties.
“A critical view would be that those consumers with a preference for new build properties qualify for a green mortgage ‘by accident’ rather than by design,” he said.
In the meantime, Gillespie said 80%+ of all UK housing stock is non-new-build, with a typical EPC rating of ‘C’ or ‘D’. Financing of these properties remains largely in the main mortgage market, where, Gillespie said, there are very few products that encourage the improvement of energy efficiency, carbon or emission standards.
What more could lenders do to raise awareness and provide education for consumers on EPC ratings? Let us know in the comment section below.
