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."
The government said its approach to raising minimum standards "will work with the grain of the market", using "natural trigger points" to help minimise disruption to consumers.
It continued: “We will consider different segments of our building stock individually, helping to ensure we take a tailored pathway to improving our homes, workplaces and public spaces.
“There is no one-size-fits-all solution to heat decarbonisation, and our approach to regulation demonstrates this.”
Immediate solution 'confusing' & 'naïve'
Yesterday, UK prime minister Boris Johnson announced a series of initiatives in line with the government's wider green strategy. One included a grant of up to £5,000 to replace gas boilers with heat pumps in around 90,000 homes across the country.
But these immediate plans are already gathering criticism.
"The rollout of heat pumps is not a viable long-term solution for the energy crisis given that most households can’t use them," said Myles Robinson, heating expert at UK boiler provider Boiler Central.
"The government is looking into using hydrogen as a suitable alternative, which is much more suited to UK homes. However, as progress is slow on getting gas grids to switch to hydrogen, the UK is pushing heat pumps as a solution when they are just a sticking plaster on a serious problem."
Robinson concluded: "Like the ‘green grants’ launched last year halfway through the Covid-19 pandemic, we can expect consumer confusion and no clear progression on what exactly will be fuelling our homes in 20 years."
Emma Cox, Shawbrook Bank's sales director, called the government's immediate plans "naïve".
"There are millions of properties across the UK that are more than a century old, some 500 years old, so this won’t simply be a case of replacing a boiler to improve its energy efficiency rating, the true cost could reach the tens of thousands," she said.
"It’s naïve to expect that every property will require the same improvements or will be affordable to landlords or homeowners.
“If we are all going to cut carbon emissions, and have a more eco-conscious economy, the government must step up to provide further incentives and support to homeowners."
Kevin Purvey, Coventry Building Society's mortgage director, agreed lenders, and especially homeowners, "need a more complete and fully coordinated plan".
“Next week’s Budget is the ideal opportunity for the chancellor to set out in more detail how everyone can prepare to do more for our environment," said Purvey. "This needs to be both cost effective and over a reasonable period of time."
Purvey believes the proposal from the Green Finance Institute to introduce an energy-adjusted Stamp Duty Land Tax "should be seriously considered" by the chancellor.
ruby.hinchliffe@ft.com
