Executive calls for greater push on environmental efforts
Speculation around imminent energy efficiency regulation is rife and has left many lenders, brokers, and borrowers highly confused or even anxious.
Published in 2017, the government’s Clean Growth Strategy states its aspiration that “as many homes as possible are improved to EPC Band C by 2035, where practical, cost-effective and affordable.”
“In the five years since, we have seen two further government consultations, but no additional guidance published,” said Danny Belton, head of lender relationships of Legal & General Mortgage Club.
Belton said that while it’s encouraging to see this conversation is ongoing, he believes a formal steer would be widely appreciated.
“The idea of ‘green’ red tape is as confusing as it sounds, and the mortgage sector is crying out for clarity,” he added.
Despite this, Belton said the need and demand to push on with environmental efforts is clear. He believes the mortgage sector is clearly growing new shoots, although their direction remains to be seen.
Read more: Green mortgages in the UK – why 2022 is a breakthrough year
“The key priority for brokers should be education, both for themselves and their clients. This is a complex and rapidly changing area that needs our full attention,” said Belton.
Landbay data shows that 54% of landlords with one to three properties are aware of the proposed regulation in the government’s Clean Growth Strategy.
Belton believes brokers have a duty to close this education gap. Educating residential borrowers on EPC ratings – both what they are and how to source them – is another vital step, according to Belton.
“Brokers do not need to go it alone, however, and organisations like Sero, which supports landlords, lenders, and housebuilders to plot pathways to net zero homes, can help with these conversations,” he said.
Brokers have a unique position as trusted advisers to lay the groundwork for this education, according to Belton.
While brokers will be key in sparking interest in this area, he also said product innovation has a crucial part to play.
“Some will be happy to borrow more to fund the energy efficiency improvements needed to qualify for a green product. Others will prefer to pay a higher rate in return for cashback. The industry needs to provide options for everyone,” he said.
Data from Mortgages for Business showed that landlords could pick from 353 green products at the start of March, up from four a year ago.
However, Belton said this is a drop in the ocean considering the task at hand. “We can remain hopeful that lenders might kick on with this later in the year when they have a clearer picture of the market,” he said.
Coupled with the uncertainty around supporting those who can make green improvements to their homes is concern around how to support those who simply cannot, Belton said.
Rightmove puts the number of properties which cannot be improved to an EPC C rating at just shy of 1.7 million.
Data from The Mortgage Works showed that 52% of landlords who own a property with an EPC rating of D or below have considered selling some or all of their properties due to concerns around potential green regulation.
Belton explained that others have gone as far as to suggest that the green agenda could create the next generation of “mortgage prisoners” or a two-tier society.
“We will need to take great care to ensure that borrowers are not an unintended casualty of our green push,” said Belton.
Read more: 90% of brokers expect popularity of green mortgages to rise
The position of borrowers is by no means an easy one either. Belton said they firstly need clarity, from the government, lenders and brokers alike, to avoid jumping the gun and making changes that will need to be corrected later down the line.
“Unfortunately, we have seen this recently with changing attitudes towards spray foam. While initially approved under the government’s now infamous Green Homes Grant, reports have suggested the use of it could have rendered a quarter of a million homes ineligible for a mortgage or equity release,” he said.
Another key barrier to retrofitting homes has, of course, been the bill. Nationwide Building Society prices decarbonising a home at £8,100, and £25,800 for homes with a F or G energy efficiency rating.
With the average annual savings of “greening” at around £1,780, owners of older properties would need to wait 14 years before they reap the financial benefits.
“The UK being dominated by older housing stock, with some 36% of properties in the private rented sector built before 1940, makes the challenge of retrofitting all the more difficult,” said Belton.
Having said that, he explained that the Chancellor’s recent move to scrap VAT on energy efficiency measures such as solar panels, heat pumps and insulation is a sign that the government is taking note of the affordability concerns.
The demand is clear, with sustainable living now guiding the way, buyers are making home-moving decisions, according to the Home Builders Federation.
“Second charge lending could also help borrowers to meet this financial challenge but it will not be accessible to all,” Belton said.
He also believes that an influx of small loans could start to stretch lenders’ resources. “The hope is that the cost of retrofitting comes down as demand goes up, but this does not offer any relief in the meantime,” he said.
“Amidst all the uncertainty, the need for discussion and development is key. The seeds have clearly been sown with green mortgages, but what will grow of them remains to be seen.”
