With more people turning to equity release as a means of accessing cash during the cost of living crisis, advisers are witnessing more clients experience the downside of choosing to use spray foam insulation.
Historically equity release lenders will not accept a property with spray foam roof insulation, and many mortgage lenders will not offer a mortgage deal for properties that have it installed.
The use of spray foam insulation was one of the measures covered by the government’s green homes grant scheme, which closed in March 2022 and covered up to two-thirds the cost of home improvements.
According to the Residential Property Surveyors Association and the Property Care Association, as of December 2021 there were around 250,000 homes with spray foam insulation in the UK.
If lenders and surveyors can’t agree on a sensible view on spray foam insulation then homeowners need to be warned up-front Paula Higgins, HomeOwner AlliancePFEP Wealth Management managing director, Richard Bishop told FTAdviser that homeowners would install the insulation without thinking they would be affected by the downsides, but the cost of living crisis has meant he is now seeing people regret their decision.
“With the problems with inflation and the cost of living rises we are seeing a small number of clients who didn't realise equity release is also affected by foam installation,” Bishop said.
“The fitting companies have been telling clients the issue [with remortgaging], not making it clear that equity release is also affected. More elderly clients 12 months ago would not have thought they may ever use an equity release product in the future.”
He added: “As we advise clients, always think a decision you make today could have catastrophic effects on your future financial planning. You shouldn't install anything in your home that could affect its overall value in terms of any possible future lending.”
Les Pick, director of manufacturing and adviser propositions at later life lender More2life noted that the challenge with spray foam is that it is not widely regulated.
“Incorrectly installed spray foam can cause serious issues over the long-term including water damage that can ultimately require the roof to be stripped back and replaced,” Pick said.
“Insulation is vital but homeowners need to be careful about the choices they make as they can impact the value of their home.
“Typically, equity release lenders are very wary of spray foam and few are able to accept it,” he added but pointed out that some lenders do accept it once it meets certain criteria.
Government schemes
In June of this year, the government said it had no plans to intervene where property values or access to mortgage finance had been affected as a result of spray foam insulation using green home grant vouchers.
Property advice website HomeOwner Alliance are now campaigning to ensure spray foam insulation does not make it onto the list of approved insulation under the government’s ECO+ scheme.
Announced as part of the Autumn Statement, the government's ECO+ scheme will see £1bn in funding made available to improve energy efficiency in homes.
Around 80 per cent of the funding will be used to upgrade households with some of the least energy-efficient homes - those with an EPC rating of D or below and those in the lower council tax bands.
A consultation is currently open for the programme and it is not year clear what sort of insulation will be included in the scheme.
FTAdviser understands the Department for Business, Energy and Industrial Strategy plans that any product must be installed in accordance with the standards set by the scheme and building regulations.
Paula Higgins, chief executive of HomeOwner Alliance said: “For years spray foam roof insulation has been on a government list of approved measures and homeowners have been able to access government grants to reduce the cost of installing it in their homes.
“So we are shocked and dismayed that homeowners doing the right thing are now being financially penalised: they either pay over the odds to remove the spray foam or remain stuck with homes they will find difficult to remortgage or sell.”
Higgins added that the government needs to “sort the mess out”.
“Homeowners can’t be expected to pay for government-backed energy efficient measures only to have to pay twice over again to get it removed when they come to sell or remortgage.
“If lenders and surveyors can’t agree on a sensible view on spray foam insulation then homeowners need to be warned up-front and the government needs to require insulation companies to run a warning of the consequences of installation on their marketing material.”
FTAdviser approached a number of mortgage brokers to gauge how widespread of an issue this is when it comes to remortgaging.
The consensus was that it is not a widespread problem, but that it can be a particular issue for borrowers who have fewer options of lenders, like self-employed individuals or those with bad credit.
Chris Schutrups, founder of the Mortgage Hut said: "Some lenders will decline it, some will leave it down to the valuers comments and others are fine with it.
"An example we had was that Accord Mortgages declined a clients property based on spray foam, we managed to replace it with Virgin Money."
Schutrups added: "Our advice would be if you're going to have it done, make sure it's done by a reputable company and you get the correct paperwork."
Mortgage and equity release specialist at Missing Element Mortgage Services, Paul Neal said the biggest tip he would give homeowners is to steer clear of it but that if they are going to use it make sure it is open cell and carried out by a reputable and certified company.
Neal said: "Closed cell is a no no and lenders will run a mile, open cell, however, is subject to criteria and certification and some lenders will offer terms on this."
jane.matthews@ft.com
