Green mortgages and the role these products have in driving change

Ana Bajri, head of sustainability at Countrywide Surveying Services, in an article on the Mortgage Finance Gazette website, discusses convening an expert panel on our latest webinar to discuss green mortgages and the role these products have in driving change. What are your views on green mortgages?


Blog: Green mortgages – carrot or stick?

We are all increasingly aware of the impact our homes have on the environment. With climate change rising in the housing sector agenda, the challenge isn’t one a single party can tackle alone.

As an industry, we all have a part to play in minimising negative environmental impact and improving the energy efficiency of the UK housing stock.

We are witnessing a rise in interest from the public in addressing climate change, with added pressure from the government to meet energy targets. A recent survey conducted by the Building Societies Association discovered that 72% of consumers said the energy efficiency rating of a property was important when looking to buy a new home.

As part of our proactive engagement with the sector, Countrywide surveying Services convened an expert panel on our latest webinar to discuss green mortgages and the role these products have in driving change.

Green mortgages came to the fore in 2018 when the government Green Finance Taskforce published recommendations that advocated green mortgages.

These products enable lenders to recognise energy efficient properties in their portfolio, while offering consumers incentives to either invest in a more energy efficient home or help existing homeowners finance improvements.

The carrot?

The sustainability agenda offers a great opportunity for bigger change in the home ownership sector. The government has ambitious targets to decarbonise the housing stock and lenders are recognising their existing portfolios have a significant exposure to climate risks.

Panellists talked about the shift being witnessed as more green mortgage products are being brought to the market from lenders, especially by passionate individuals in these organisations.

The Green Finance Institute highlighted that since it launched the Green Home Finance Principles a year ago, which provide a useful framework for lenders, 11 lenders are applying them.

As the market landscape shifts, we’ll begin to see more products from lenders enter this space. But the demand for these products is currently still low.

Therefore, there is a role for everyone to play in relaying relevant information to consumers; helping clients to move towards improved energy efficient homes; and as an industry avoid the risk of stranded assets.

We asked the audience what their take is on the green mortgage product landscape.

The vast majority (94%) of brokers in the audience reported that they have not sold a green mortgage product. The responses from lenders in the audience highlighted that 39% of lenders will soon or currently offer a green product.

And 92% of surveyors in the audience reported that they are still yet to value a property with an EPC rating of A.

This indicates more needs to be done by the government, policy makers, lenders and industry to provide clarity for consumers; offer extra incentives, or rewards or penalties to tip the balance and attract home buyers to energy efficient homes as a prime feature.

We also asked the audience how they think the majority of home improvements will be funded to make existing housing stock more sustainable. The majority of respondents’ named government funding as a key source (53%), followed by mortgage or second charge lending finance (24%).

The audience responses also highlighted that there is a real drive to improve energy efficiency, with 46% personally seeking to carry out improvements in the next three years to make their home more sustainable.

Panellists agreed there is currently a limited understanding of public obligations and what is coming down the track in terms of legislation and incentives.

Drivers and opportunities

A multitude of drivers currently exist for lenders to enter the green mortgage market. However, although panellists unanimously agreed that green mortgages are important in making changes, these are seen as just a small piece of the jigsaw – the bigger piece being helping people to understand the energy performance of their home.

Innovative lending products coupled with clarity on government incentives and enhanced market recognition can make a real difference in improving energy efficiency in homes.

This will in turn stimulate change and support comparable data, which would enable the market to start to price-in the added value of energy efficient assets and create the value difference between low and high energy efficiency.

Fundamental to ensuring any policies and solutions are a success is also the need to ensure we have a competent and sufficient workforce to assess energy efficiency and evaluate and install suitable energy efficiency improvements.

Residential surveyors will have a significant role to play in servicing the growing need for improvements in the home ownership sector, supporting homemovers and lender clients in making greener choices.

An example of this is our EnergyFact report product, launched earlier this year, which provides consumers with guidance in improving the energy efficiency of their home.

We will continue to proactively engage with the sector and relevant bodies to identify solutions and ensure our surveyors and valuers have the tools and frameworks they need to accurately report on the market, as we continue to deliver to the needs of our customers, and play our part in improving the energy efficiency of the UK housing stock.

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