‘Green mortgages’ have been on the rise, and although the ‘green’ status of a mortgage is self-determined, common features generally include offering a lower interest rate for properties with a better energy efficiency rating.
According to Moneyfacts there are currently 533 ‘green’ mortgage products (as labelled by lenders) available on the market from both high street and specialist lenders.
Many in the industry believe that this will be the year that mortgage lenders will go the extra mile to help buyers minimise the emissions associated with their property.
According to the United Nations, the building sector accounts for 38 per cent of all energy-related carbon dioxide emissions globally.
While in the UK, the Department for Business, Energy and Industrial Strategy estimate that the residential sector accounts for nearly 21 per cent of carbon dioxide emissions.
Emitwise, a climate tech specialist which helps companies reduce and control their carbon footprint, has said in order to achieve building stock that is net zero by 2050, emissions in the sector will have to be halved by 2030.
At the end of the day, we all want to live in better, warmer homes and if they cost less to heat that’s even betterSarah Coles, HalifaxSpeaking to FTAdviser, Mortgage Climate Action Group co-founder, Richard Merrett said in the past few months there have been “a few decent lender initiatives” to help achieve this.
High street lenders such as Halifax and Natwest have introduced tools to help homeowners and businesses reduce their property related emissions while specialist lenders like Aldermore Bank have published useful support guides for mortgage advisers and customers.
Other lenders like Skipton Building Society have introduced a free EPC report for its mortgage holders which allows them to see what improvements they can make to improve their property’s energy efficiency.
Merrett noted that steps like this are even more important in the current climate as they can help homeowners reduce their energy bills in the long-term.
He also pointed out that it is relatively easy to “shift the dial” when it comes to a property's EPC rating.
"I've seen firsthand quite a few instances where someone has been a couple of points away from moving from one band into another and it might be that just putting in LED light bulbs, or putting an energy efficient jacket around the boiler, actually gives you the requisite score to nudge it up,” Merrett said.
“It’s highly possible that if someone's done work to a property since the last EPC was done that they have improved the rating,” Merrett added.
Another popular approach taken by lenders has been to offer cashback for A or B EPC rated homes or to give cash towards energy efficiency improvements - like installing a heat pump or insulation.
Halifax offers both of these initiatives and has recently partnered with Octopus to make the process of arranging a heat pump easier for customers.
The lender’s head of mortgage development, Sarah Coles told FTAdviser that while green mortgages are still quite new to the market they are slowly growing in popularity with borrowers.
Coles agreed with Merrett that the recent leap in fuel bills will have put energy efficiency at the front of many homeowners’ minds.
“Millions of homes are below the government’s target of a minimum C EPC rating. This means they are losing heat and wasting energy. We need to tackle this to reach net zero targets, but at the end of the day, we all want to live in better, warmer homes and if they cost less to heat that’s even better,” Coles said.
In her experience, energy efficiency considerations are relevant not just at the point of a property purchase but equally when it comes to remortgaging.
“We find that people are most likely to make their home greener when they’re making other home improvements – such as installing a heat pump when you’re having a new kitchen, or improving the insulation when you build an extension.
“People often need to borrow more on their mortgage for these kinds of projects,” Coles explained and noted that this is where nudges and cashback offers are also important.
No one's under any illusions that this isn't going to be a little bit more challengingRichard Merrett, Mortgage Climate Action GroupThe role of advisers
In Merrett’s view, these steps are to be welcomed by lenders but he highlighted that advisers can play a bigger role too, particularly around education.
He noted that some lenders have recently started doing more to raise awareness about the need for advisers to embrace the narrative around sustainability.
“No one's under any illusions that this isn't going to be a little bit more challenging in terms of enquiries and the purchase market being a little bit quieter,” Merrett said.
One opportunity he recommended mortgage advisers and brokers take is to try and introduce sustainability concerns with clients in annual reviews.
Merrett noted that the classic path for an annual review is ‘we did loads of deals last year, let's go back and speak to everyone who we didn't sell protection to’ but he believes they are also the perfect opportunity to follow up with clients whose purchases have already completed.
In his view, addressing energy efficiency through this avenue is very pertinent firstly because of the rising energy bills, but secondly because it is a good opportunity to let the client know there’s more you can potentially help them with.
“Whether that client then does some additional borrowing to address some of these concerns or whether they just go away with an awareness, for me, that's a great thing,” Merrett said.
“It's somewhere that brokers can add value,” he added.
This is particularly the case for buy-to-let clients Merrett said, who may be confused about upcoming changes to regulation.
“It may not mean an immediate sale for me, but by adding value through advice you should get the positive ripple effect of further cementing the long-term customer-broker relationship, and it's also an opportunity for referrals,” Merrett said.
A holistic approach
Another important area where mortgage advisers can address sustainability with clients is in the early days of a house hunt.
“It’s first worth noting that a refurbished house is far more carbon efficient than a new house,” Emitwise co-founder and chief executive, Mauro Cozzi told FTAdviser.
“This is because the majority of a house’s carbon footprint is produced during its construction phase. So eco-conscious home buyers might want to look for a refurbished home with Brand A energy efficiency – one that incorporates good insulation to help cut down on energy consumption.”
However, Cozzi realises that with the UK’s housing shortage most homebuyers will have limited options open to them.
“If a new build is required, we encourage buyers to seek out developers that have explored sustainable materials, such as timber over concrete – concrete being notoriously hard to decarbonise.
jane.matthews@ft.com
