With the issue of global warming dominating our news headlines on a daily basis, UK consumers are being urged to reduce their CO2 emissions and minimise their carbon footprints. Although air travel and gas-guzzling 4x4s are often seen as the general public’s biggest contribution to pollution, government figures reveal that British homes actually pump out 26 per cent of the UK’s total carbon emissions.
In his Pre-Budget Report in December, Chancellor Gordon Brown announced that from this year the vast majority of zero carbon or carbon neutral new build homes would be exempt from Stamp Duty. This, Brown said, would support the government’s aim that by 2016 all new homes would be carbon neutral. However, up until now, there has not been a definitive explanation of what constitutes a carbon neutral home.
Yet the Chancellor’s Stamp Duty pledge seems to have had little impact on home buyers, particularly as new build is a small part of the housing market and currently there are only around 30 properties in the country that are considered
carbon neutral.
Lender UCB Home Loans published its own research among 1,000 intermediaries to gauge their understanding of green issues and their thoughts on reaching the government’s 2016 target. UCB found that over 67 per cent believe the UK will not be able to meet this target, while only 44 per cent think we will be able to reduce carbon emissions by 50 per cent by 2050.
The research went on to find that 98 per cent of intermediaries believe that most homeowners do not know the size of their own carbon footprint, while 94 per cent think that consumers do not know the best way to reduce their carbon output.
Perhaps what is most interesting is that 65 per cent of mortgage brokers feel that lenders should be taking action on green issues, and a significant 58 per cent feel that mortgage intermediaries themselves could also help to reduce carbon emissions.
UCB has said that it will be launching a consumer campaign to raise awareness of measures to save energy and reduce carbon emissions, while taking steps to become carbon neutral itself. Commenting on the findings, Keith Astill, managing director of UCB Home Loans, said: “The views of intermediaries are important, because they are responsible for arranging a large proportion of all home loans – including new build developments. They deal directly with homebuyers and so are ideally placed to make a judgment.”
So, just how green can homes be? And, for that matter, how green can mortgages be?
‘Hot air’
There are at least three lenders that currently offer ‘green’ mortgages. But with the market emphasis on cost, as well as strict regulatory requirements, not many mortgage intermediaries are going to promote green borrowing unless their clients ask for such a product, or if the broker promotes itself as
being ‘green’.
Danny Lovey, who operates as The Mortgage Practitioner in Basildon, echoes the views of many brokers. “There is a lot of ‘hot air’ about this issue, and I would fall into the two-thirds of brokers who believe that the government targets won’t be met,” he says.
Lovey questions whether mortgage advisers can actively promote awareness of green issues, given that their main role – which is difficult enough – is to advise on the most suitable mortgage. He explains: “What can intermediaries do? Nothing that I can think of. What can the lenders do? Now that’s a different question. They could refuse mortgages if the properties are not up to the government’s standards, but I hardly think lenders would
do that.”
Education needs to start with consumers, Lovey says, so that awareness will be taken over into the house hunting process. He points out that when Home Information Packs (HIPs) are introduced later this year, one of the few remaining elements with any teeth will be the Energy Performance Certificate (EPC), which will detail just how energy efficient the property is. The more energy efficient a property, the less carbon it pumps into the
atmosphere.
“I think the process will be slow,” Lovey says. “The energy information that will be included with the sale particulars will maybe get vendors and new home purchasers more focused on energy efficient properties, but if borrowers love the house and it is their dream home, I doubt that a poor energy rating will affect their thinking.”
Green HIPs
In fact, quite apart from raising awareness of energy efficiency, one broker believes that the introduction of HIPs will actually increase the emission of carbons. West-Midlands-based broker Promise Finance has launched a new division called Promise Homepacks, and has developed a ‘green’ HIP. The firm says that although HIPs will help the government get a better handle on just how much carbon houses are contributing to the environment, lenders need to take steps to ensure they do not make the problem worse by duplicating some of the work required by HIPs.
Darren Beech, managing director of Promise Homepacks, said: “With all new properties having a requirement to be built ‘carbon neutral’ by 2016 this issue can only get more important. Mortgage lenders must be encouraged to use the information gathered in HIPs to provide them with valuations. There is no point in a home inspector visiting a property and then a mortgage lender sending a valuer out six weeks later. That is obviously not carbon efficient when one visit could do both.”
Beech says that the introduction of HIPs will dramatically increase the number of property surveys carried out in the UK, increase the infrastructure demands and waste that goes with them. He says: “One of the main reasons that the government has bought in HIPs is to collect energy performance data on its housing stock. The Kyoto treaty signifies that the UK must do its part to reduce carbon emissions to pre-1990 levels starting in 2008 and obtaining this data is the key to that. What it has failed to realise is that the HIP legislation itself will increase carbon output from the property industry.
“Currently only 15 per cent of UK home buyers commission a survey. This will suddenly increase to 100 per cent of sellers on 1 June – an increase of more than a million surveys each year, and I’m sure you will agree that not many surveyors cycle to jobs. Put this together with at least one 80-page document being printed for each HIP and you have created a substantial carbon footprint, so the HIPs legislation will contribute greatly to the problem.”
So although the firm supports the thinking behind HIPs, Promise believes more can be done to lessen their impact on the environment. Beech continues: “That’s why we looked into the possibility of creating a green HIP and together with Climate Care have developed a way of offsetting some of the effects associated with the introduction of HIPs. Our HIP is composed of 100 per cent recycled paper using a carbon neutral manufacturing process.”
Tackling the issue directly
Other commentators believe the government should do more to tackle the issue directly. Tax consultant and chartered accountants, MacIntyre Hudson, says Chancellor Gordon Brown may well bring in a dual band VAT for cars and consumer appliances in his Budget next week, levying 25 per cent VAT on inefficient 4x4s and freezers, while cutting it to 5 per cent on cleaner cars and efficient boilers. Tax principal, Patrick King, believes the tax would encourage greener behaviour. He says: “It would add a serious incentive to consumers to buy environmentally friendly goods. It would lead, over time, to manufacturers producing goods that would qualify for the lowest VAT charge.”
But more needs to be done to encourage builders to build energy efficient and carbon neutral homes. The government’s proposed low-cost homes, selling for under £60,000, are supposed to be carbon neutral when they are built, with many available under its shared equity schemes.
In the commercial sector things are not so clear, as Stewart Baseley, chairman of the Home Builders Federation, explained recently. “We need to know precisely what needs to be achieved to make home carbon neutral. Are we measuring energy efficiency or are we assessing the carbon footprint of new homes? Once the framework has been agreed, its success will rest on the ability of the government to step back and allow the industry to do what it does best – change, adapt
and innovate.”
Lender responsibility
There are a handful of lenders offering ‘green’ mortgages, most notably the Norwich and Peterborough Building Society, the Ecology Building Society and the Co-operative Bank.
Norwich and Peterborough launched its first green mortgage in 1998, and for every carbon neutral mortgage approved, the lender plants eight trees per year for five years through The CarbonNeutral Company to absorb or offset the CO2 emissions produced by an average property. The lender says that it is the UK’s first carbon neutral building society.
The findings of UCB don’t come as a surprise to Norwich and Peterborough, as head of communications, Alison Rolls, explains: “In terms of their lack of understanding of green issues, brokers are no different from the rest of the mortgage market. An intermediary’s main motivation is offering advice on the products they get asked for, but until borrowers start asking for mortgages that literally don’t cost the Earth, things won’t change. It is a case of supply and demand.”
The lender’s green mortgage originally came in response to a wider environmental campaign on behalf of the town of Peterborough, and was initially only available for new build properties. The building society quickly realised that the best way to raise awareness of such issues was to make the mortgage more widely available, so the product was extended to existing properties.
Rolls believes that the EPC element of the HIP will make people more environmentally aware by highlighting for the first time just how expensive it is to run houses that are not energy efficient.
She explains: “The EPC will mean that people will know more about energy efficiency. Buyers will see a property and think ‘what a lovely house’, but they might find out that it will cost a fortune to run because it is so inefficient. The EPC will provide borrowers with a much better picture of what they are buying.
“By telling people to do something about improving the energy efficiency of their property, they will also end up cutting their fuels bills and save themselves money. It is a win-win situation.”
Norwich & Peterborough is also keen to give its customers further borrowing to install energy saving features, such as solar panels and wind turbines. The lender believes the government can further this cause by removing VAT on such energy saving features, promoting the local council grants that are available to help householders install the equipment, and by reducing the Stamp Duty on properties that are more energy efficient, not simply by offering nil duty on carbon neutral homes.
However, Rolls also believes that lenders can do more. She explains: “Lenders have the ear of homebuyers and owners, via their customer magazines and other communications, so there is lots they can do to raise awareness. Lenders have a responsibility to talk to their customers about this issue.”
Jenny Irwin, marketing manager at the Ecology Building Society, is also not surprised by the lack of awareness of green issues among brokers. But she points out that it is not their job to know about such things. Irwin says: “I do feel sorry for intermediaries as they have to deal with every new development in the industry, whether it is changing trends in products or
new regulation.”
Ecology lends on properties it feels will bring a long-term positive impact on the environment, which includes the renovation of derelict properties, conversion of disused properties, buildings built used traditional methods such as rammed earth or wattle and daub, as well as eco new build projects using sustainable materials.
One of its products includes a discount offered as an incentive to borrowers who intend to install energy efficient features in their new home. Irwin also believes that other mortgage providers could do more to raise awareness of green issues. She explains: “Maybe lenders could start by offering advice to borrowers on how to make their homes more energy efficient. This is information that intermediaries could also offer to their clients.
“But it needs to be a collective effort by the government and consumers. I believe many consumers want to be more environmentally aware, but they want these measures to be affordable. It is hard for consumers to get their heads around this issue, but what will help is when they see both sides, in terms of the impact to the environment and the cost of energy inefficiency to themselves.”
Not high on the agenda
Currently green issues are not high on the mortgage industry’s agenda, so seemingly arbitrary targets set by the government will have little impact. But environmental issues will not be going away, so we in the mortgage industry will have to tackle the topic sooner or later.
As Rolls concludes: “I think that in five years’ time, buyers will be more concerned about how their property is built and whether it is environmentally sustainable or not. This could have a major impact on the mortgage industry, the products we sell and the advice we offer our customers.”
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There is a question mark over whether Home Information Packs (HIPs) will actually be introduced in June after the Council of Mortgage Lenders (CML) called for the initiative to be delayed, echoing the concerns of the government’s own Better Regulation Commission. The CML believes not enough research has been done into the impact of HIPs on consumers and the home buying process.
The CML also questions whether Energy Performance Certificates (EPCs) will actually encourage borrowers to be more energy conscious, again citing concerns that the HIP system will not be able to cope with the demand for the EPCs, which in turn could cause problems for would-be sellers that do not have them.
The CML says it believes there are already good incentives in place, such as council rebates for energy saving measures, to encourage people to make energy improvements. Jackie Bennett, head of policy at the CML, said: “Incentives to make homes more energy efficient are desirable, but again it is unproven whether including EPCs in the HIP will result in consumers taking energy saving measures.”
The CML’s stance and that of the Better Regulation Commission is slammed by Friends of the Earth, in a letter to Housing Minister, Yvette Cooper, seen exclusively by MI. In the letter, Tony Juniper, executive director of Friends of the Earth, claims that EPCs will make a valuable contribution to making houses more energy efficient.
Juniper states that he has been assured by the Association of Home Information Pack Providers (AHIPP) that there will be enough inspectors ready to carry out the EPCs. He also dismisses the Better Regulations Commission’s suggestions that EPCs should only be undertaken every 10 years, saying that such information would quickly become outdated.
The letter says: ‘Friends of the Earth believes that EPCs could be a powerful and effective policy if combined with other measures to help make it cheaper and easier for homeowners to cut their carbon emissions and save money. We are asking the Chancellor at the forthcoming Budget to provide £1.4 billion to fund a national scheme of council tax rebates for those wishing to install cavity wall or loft insulation, and £1 billion to fund a quantum leap in the grants available for the installation of renewable micro-generation technologies.
‘We also urge the government to cut the rate of VAT on high environmental quality refurbishments and to bring in a Stamp Duty rebate for home buyers making substantial energy efficiency improvements to a building within a fixed period of purchase.’
