Mortgages  

Govt’s green plans could trap borrowers and affect house prices, experts warn

Govt’s green plans could trap borrowers and affect house prices, experts warn

The government's plans to introduce “mandatory disclosure requirements” for mortgage lenders on the energy performance certificate of properties could "trap" homeowners in older, less energy efficient homes and affect house prices, experts have warned.

Kwasi Kwarteng, Secretary of State for the Department of Business, Energy and Industrial Strategy, announced the plans, which are still under consideration, in a 202-page document published yesterday (October 19) entitled 'Heat and Building Strategy'.

The department also said it was looking at setting “voluntary improvement targets” for lenders’ existing portfolios, which could see them required to reach an average EPC band C across their entire existing mortgage portfolios by 2030.

It added that it would consider “the option of making this target mandatory if insufficient progress is being made” by the UK lending industry.

Alongside potential requirements for lenders, the department said it was reviewing plans to urge all homes to meet a net-zero minimum energy performance standard before 2050 "where cost-effective, practical and affordable.”

These plans were laid out in an effort to kickstart the green finance market, which has already seen a number of lenders launch green mortgages - either to reward homes of an EPC band C or above, or to incentivise those with inefficient homes to make improvements.

But experts have expressed their concerns over the potential introduction of mandatory requirements and targets for lenders.

“The use of targets could distort the market and sway lenders towards preferential, newer homes in order to improve the rating of their portfolio," said Timothy Douglas, Propertymark's policy and campaigns manager.

"Incentivising green improvements to properties via lending creates risks of trapping homeowners with older properties, those who live in rural areas, listed buildings or conservation areas, making their homes difficult to sell and therefore reducing the value," he warned. 

Douglas said he was concerned stopping "a large portion of housing stock from being able to enter the market" could wreak "havoc" for home buying and selling, as well as the wider economy.

He added: "We would be concerned if lenders raise rates and limit products because fundamentally, improving the energy performance of a property is reliant on consumer choice and it is not the core business of mortgage lenders.”

Sarah Coles, personal finance analyst at Hargreaves Lansdown, agreed the government's plans "could cut the value of older, family homes.

"The problem is that while some properties can be improved at relatively little cost, other homeowners will find it prohibitively expensive," she explained.

"They may not be able to afford to borrow more, or the cost of changes to older properties may be disproportionately high, so they’d never recoup the cost of the improvements through a sale."

Coles reckons legislation "is likely" to include an exception of some kind to allow people to get a mortgage on these homes.

"However, it’s likely to get much harder to track down a cheap mortgage for an inefficient property, which will make them more difficult to sell, which in turn is likely to bring down their value," she added. "Owners may also struggle to remortgage, so could end up paying over the odds each month."