Yet, green mortgages remain a niche product. One obvious reason is the lack of properties that meet the criteria. Even EPC C-rated buildings, let alone those with higher ratings, are a minority in the UK. Analysis by property portal Rightmove in June found that of 15mn homes in England and Wales, 59 per cent were rated D or below. There is not much point in a green mortgage deal if you cannot find a property that qualifies.
However, that does not really explain it, because green mortgages are not restricted to new builds or just funding purchases. Many offer similar incentives for borrowing to retrofit their existing home or improve a property they are buying.
This type of lending will be crucial if the UK is going to meet its targets for sustainable building and carbon emissions more generally. Rightmove estimated that, of the 8.9mn homes rated D or below, most could reach C or above with some investment to upgrade them. Only 1.7mn did not have the potential to meet the standard.
Green mortgages have a crucial role here and they need to scale up quick, with the UK Climate Change Committee estimating that £250bn needs to be invested in UK home upgrades by 2050.
Achieving that will require a collective effort across the property industry – from lenders, advisers and real estate agents.
Costing the earth
We should not understate the challenge. Perhaps the biggest barrier to retrofitting existing buildings is the cost, even if it can potentially boost the future value of a property. Estate agents Savills has calculated that the average D-rated property – the lion’s share of UK housing stock – needs an average of £12,746 spent to reach a C band. In a similar vein, a G-rated property would require more than £26,000 to meet the C-band standard.
Naturally, homeowners that do invest in efficiency improvements face two major benefits. Firstly, reduced running costs, which should help to earn back the upfront cost of the changes over the long-term. However, the second and more important, is the impact on the value of the home.
To younger buyers especially, efficient homes are more attractive; they have reduced running costs and play to the needs of the green agenda. Homeowners would also be wise to ensure they do not risk falling below any minimum energy-efficiency targets imposed by the government. This could see the value of a home reduced significantly.
