The VALUER project will see the UK's first mortgages and additional borrowing that recognise home energy efficiency in their affordability calculations.
A collection of industry partners led by Monmouthshire Building Society, The Royal Institution of Chartered Surveyors (RICS), Rightmove and Sero has launched a research project to pilot green mortgages and identify value difference for low carbon homes.
The VALUER research project will see the first mortgages and additional borrowing offered in the UK that recognise home energy efficiency in their affordability calculations.
The project aims to develop understanding and demonstrate the emerging difference in value between low and high energy homes.
As part of the project, green mortgages and additional borrowing products will be made available to two 'geofenced' pilot areas in South Wales.
This will include a number of new-build low energy homes at Parc Eirin in Tonyrefail, the Eastern High development in Cardiff, and existing homes in the area looking to make retrofit energy improvements.
The new homes will include a mix of solar panels, energy storage and smart energy systems, being installed and managed by Sero Energy, to minimise the energy costs for residents.
New home purchasers will be offered pilot mortgage products that include assessments of energy efficiency and other new considerations.
The project will monitor product uptake and property values in the pilot areas, to understand the features and behaviours that drive any value difference that may emerge, in order that home valuations can better reflect this in future.
The project is funded by the Department for Business Energy and Industrial Strategy (BEIS) and Green Home Finance Innovation Fund, and is supported by the Green Finance Institute.
Monmouthshire Building Society will be the first mortgage lender in the UK to adopt the findings from a previous piece of research, the LENDERS project, and adapt its affordability calculation tool to more accurately reflect actual home energy bills.
This could potentially increase the maximum affordable mortgage by up to £12,000 for a very low energy home, compared to a poorly performing property.
Dawn Gunter, chief operating officer at Monmouthshire Building Society, said: “Despite the growing concern around the climate emergency and the widespread acknowledgement that we need to decarbonise homes – currently there is a lack of understanding within the industry about how we put a value on low carbon homes, making it challenging to support members who are buying or looking to adapt their existing property.
"As a member-led mutual, we are committed to leading the way in helping bring about this change and are looking forward to getting this pilot off the ground, which we are confident will be a catalyst for real change in the industry moving forward.”
Rightmove will bring green information to its Surveyor Comparator Tool (SCT) that will draw on energy performance certificates (EPCs) and energy efficiency information to support surveyors as they compare and value green features in homes.
It will also use advanced analytics to bring green features to its automated valuation model (AVM) to understand their impact on value.
Tim Bannister, director of data services at Rightmove, said: “Enabling property valuers to assess the value of low carbon homes is going to become increasingly important over the coming years with a growing focus on energy efficiency.
"Developing tools to help identify low carbon features and present these to property valuers is clearly going to be a key part of this overall jigsaw.”
Andy Sutton, co-founder of Sero, said: “There is little current evidence that the market places a value difference between high and low energy homes.
"Identifying this value difference is key to enabling building more low energy new homes and to the low energy refurbishments of our existing houses.
"The end value underpins the finances and showing low energy homes have better future value than high energy homes will help support the higher cost of building or refurbishing these homes.
“It is also very positive to see this project implementing the findings of the Innovate UK part-funded LENDERS project, led by Nationwide Building Society, that demonstrated how better account of energy bills could be made in mortgage calculations.”
RICS will work closely to use the findings of the research to review and enhance the guidance it provides to it professional members.
Ben Elder, global director of valuation for project partners at RICS, said: “RICS sets the standards by which all regulated valuers operate.
"We are delighted to be partners to this innovative initiative - which will provide much needed real evidence of how the market is recognising the benefits of energy efficient buildings in ways that can be captured through the valuation and lending process.
"Green mortgage products are a key way to stimulate interest and awareness of energy efficiency, and support market change.”
Sarah Sayce of the University of Reading, who is working in an advisory capacity, added: “Residential buildings are a major source of carbon emissions; moving zero-carbon standards in both new stock and by retrofitting existing buildings is critical to addressing climate change.
"Whilst mandated government standards will certainly be required, it is important that the private sector supports, encourages and rewards behaviour change by buyers and owners.
"Differential lending policies, better market data and refreshed guidance to valuers are all key drivers of achieving such change; this project should prove to be a flagship of what can be achieved by working together.”
