The Summer of 2007 has hardly been the best, with devastating floods in several parts of the country and generally depressing weather elsewhere. With climate change starting to impact on day-to-day life, it is also increasingly starting to impact upon housing and finance issues.
Against such a background, many financial services organisations have started to offer ‘green’ products that seek to help address environmental issues. A number of companies offer green mortgages, and this number was swelled further by the then Chancellor’s encouragement for lenders to offer green mortgages in his last Budget speech. Meanwhile, the recent Housing Green Paper outlined plans by the Government to build ‘eco-towns’ and other measures sympathetic to the environment.
But many have argued that green mortgages are commercially unviable for lenders, and others have argued that many of them are just an exercise in ‘greenwashing’, and that they will do little to help the environment.
That maybe the case. However, this is an agenda that is building a head of steam, and increasingly mortgage lenders and intermediaries are being expected to be able to respond to the environmental debate.
With the green issue impacting on almost every sector, from insurance to coffee and air miles to mortgages, it is evident that, over the past 12 months, organisations from across the business scope have sought to offer a more environmentally friendly and ethical option. Indeed, the government has pledged to continue its drive to create a greener Britain – although its recent housing announcement, which called for am extra three million properties included provisions to build on both green and brown field sites.
Housing market role
Not least as it is clear that the government – and politicians of all major parties – are increasingly looking at the role played by housing in climate change, and do something about it. With housing currently accounting for around 27 per cent of carbon dioxide emissions, it is easy to see why the government is viewing the housing sector as being critical in its ambitions to reduce carbon emissions by 20 per cent in 2010 and 60 per cent by 2050.
While the government has focused most of its attention on new homes so far – with all new homes required to be carbon neutral by 2016 – with two-thirds of the homes that will be around in 2050 having already been built, it is obvious that sooner or later owners of older properties will be finding that government will be expecting them to make potentially expensive improvements to their properties to reduce their carbon emissions as well.
But it is not just the government that will be driving this agenda forward.
Utility costs are increasing, as demand increases and supply falls. Yet with all the forecasters saying that these increases in heating and fuel bills will continue into the future, the minimisation of utility bills will become increasingly important to hard-pressed householders as they try to juggle their family finances.
EPCs
The introduction of Energy Performance Certificates (EPCs) will exacerbate this further. EPCs, and the associated Home Information Packs, may have been one of the most contentious developments in the property industry for some time, but they are now – for some sellers at least – a reality. EPCs will mean that for the first time, a prospective buyer will have information provided to him on the relative environmental performance of the properties that he is looking at.
At the moment, that may be of little interest. But if utility costs continue to rise to become even more significant components of the family budget, then the environmental performance of different properties will start to matter. Should the government also choose to introduce some sort of tax benefit or advantage to owners of environmentally friendly houses, then it is likely that the environmental performance of different properties will become even more important to buyers, and will become a much more important selling point for prospective buyers.
So as a consequence, just as many people consider a splash of paint to be a good investment ahead of putting their property on the market, in the future sellers may well find themselves looking at how they can improve the environmental performance of their property ahead of selling. After all, in the white goods market, where products are marked with a similar energy rating, almost all products are now in the higher ratings, as a reflection of consumers’ preference for products that have low energy consumption.
And so, as is already beginning to happen in the commercial property market, values of environmentally friendly properties that have low running costs may start to increase ahead of those that do not.
So, the current low levels of consumer interest in green products may be about to end as the benefits, both financially and from the perspective of ‘greener living’ start to filter through.
Green mortgages
The majority of green mortgages that are currently on the market usually involve the lender making some sort of contribution to an environmental initiative either to overcome the environmental impact of the property that is being mortgaged or the environmental impact of the mortgage application process. As such, these products usually involve the lender making a contribution to an environmental charity or some other organisation that seeks to help environmental causes. Some involve the lender taking more direct action, such as planting a number of trees for each property that it is financing.
But are these types of green mortgages what consumers are going to want in the future?
Despite an increase in green products and eco-friendly goods and services, the critics of the current crop of green mortgages accuse them of being mere exercises in greenwashing and public relations. They argue that these products practically do very little in real terms to help the environment or minimising the effects of housing. Some commentators have even gone as far as to claim that these products merely give the environmentally aware the opportunity to assuage their conscience while only achieving at best a minimal improvement to the environment.
A major drawback of green products is that they tend to be expensive when compared to more conventional ones. This is a critical factor when it comes to the lack of demand for such products.
After all, with house prices being so high, people are looking for finance to buy that is as cheap as possible. Even if they are not looking for a mortgage but are looking for a loan for environmentally inspired improvements, the cost of many of these is such that they are going to be looking to borrow considerable sums. So again, they are going to be looking for finance at the best rate possible.
Don’t ignore the debate
So maybe the answer for many people isn’t going to be a green mortgage or loan after all. They maybe attracted to such a product initially, but once they have investigated what is available to them, they tend to go for a conventional product as a consequence of the cost implications.
This does not mean, however, that lenders and brokers can ignore the environmental debate. While their customers may not be looking for specifically green products, as environmental issues continue to rise up the public consciousness, then this will start to impact upon the way that companies run their business.
To compete, lenders and brokers will find that they will have to run their businesses in a highly environmentally friendly way. More customers will come with questions, and businesses will start to find their environmental credentials coming under increasing scrutiny.
As such, while consumers will still be looking for a competitively priced deal, they will only be willing to do business with someone who shares their interest in environmental issues and can match their level of commitment. No longer will companies be able to get away with planting a few trees or making a financial donation to charity – they will be expected to ensure that they are making a real contribution to improving the environment.
Fast-moving area
You may doubt that this will be the case, and that rates will remain the key market driver. It is unlikely that interest rates will lose their high ranking as one of the key factors that borrwers consider when choosing what mortgage or loan to take out.
However, this is a fast-moving area, and consumer interest is changing fast. After all, it is not that long ago that the idea there was a market for diesel cars or fair trade products would have been ridiculed. Times are changing and more quickly today than ever before. We may not be too far away from a time where one of the most important selling points of a good or service is the environmental credentials of the producer and whether it has been delivered in an ethical and eco-friendly manner.
The consumer of the future will not be looking for a green product, but a green business, and the business that can respond to that will be ideally placed to reap the benefits.
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