Recently the UN published a damning report on global climate change. There were concerning findings about where we could be headed unless serious change took place.
This is the latest in a long line of calls for the global community to come together to tackle the issue, but it is a stark reminder of the repercussions should we fail to act.
It should also be a reminder to the mortgage sector about its role in all this. While the headlines are centred on the sub-1% market, the greenhouse gases produced by UK homes still account for around 15% of our total emissions, or 22% when energy generation is factored in. That means we need drastic changes to the energy efficiency of British homes if we are to be in with a shot of meeting the UK’s target to achieve net-zero carbon emissions by 2050.
Market response
We’ve already seen changes in the market that show an awareness of the green agenda. Many lenders have launched ‘green’ mortgages designed to reward owners of energy-efficient homes. This is likely to continue, with research from the Intermediary Mortgage Lenders Association (Imla) showing that 74% of lenders expect demand for such products to grow in the next few years.
We need to guide clients towards positive decisions that will benefit them and the planet as well
However, yet more action is needed. These ‘green’ mortgages are available to only a small proportion of homeowners, including those who have self-built with sustainability in mind and buyers of new-build properties, which typically come with better energy performance certificate (EPC) ratings as standard. For those in pre-owned dwellings, improving EPC ratings may be less clear, or practical.
There is a need for closer collaboration between lenders and advisers on the issue of improving the UK’s housing stock. It would be interesting to understand, for instance, what proportion of advisers felt confident in discussing green mortgages, or when to recommend them. We need to avoid this becoming a conversation reserved for new-build clients.
Improving engagement
This is, primarily, about improving engagement so that we avoid a two-track market; whether those living in homes with higher EPC ratings have access to the best-tailored pricing and everyone else is locked out in what could be a new form of mortgage prisoner.
Imla found that, while the biggest barrier for homeowners wanting to make energy efficiency improvements was cost (27%), never having considered a green mortgage (19%) and not knowing where to start with applying for one (16%) were close runners-up. This desperately needs to change — fast. We cannot allow consumer naivety to scupper the need to make positive change as it reflects a failing on our part.
We could have a new form of mortgage prisoner
A good start would be to improve homeowner engagement with EPCs. Around half of UK homes have an EPC; the rest are untracked, so they could be highly inefficient. This also plays to the issue that EPCs last for just 10 years, so many who had their properties assessed previously could soon need a new certificate.
Helping to change this is in lenders’ interests. The Department for Business, Energy & Industrial Strategy has several ongoing consultations on how it can involve lenders in EPC reporting. Central to this is that lenders would need an understanding of the average EPC rating of their backbooks, which would also require EPC registration across the board to work effectively.
If the proposals move ahead as planned, lenders may be more likely to build in EPC requirements to their product ranges, which would help to boost engagement. Then, once a property has an EPC in place, homeowners will be much clearer on how well their home is performing, as well as steps they can take to improve it.
Prime role
Advisers too can encourage energy efficiency. Given that upfront costs are the major barrier facing homeowners wanting to remediate their home, the option to access additional lending to fund these changes could be the solution.
We need drastic changes to the energy efficiency of British homes
The government has done little in this area, aside from its Green Homes Grant, which was wound down early. That provides the perfect opportunity for advisers to discuss additional borrowing options, such as further advances or second charge lending. As the main point of contact between consumers and lenders, advisers are best placed to help borrowers understand their options.
If we are to secure a prosperous future for coming generations, we need to guide clients towards positive decisions that will benefit them and the planet as well.
Danny Belton is head of lender relationships at Legal and General Mortgage Club
