Recently, the UN released a damning report on global climate change. There were disturbing findings as to where we might be headed unless some serious changes take place.
It’s the latest in a long line of calls for the global community to come together to tackle the problem, but it’s a stark reminder of the repercussions if we don’t act.
It should also remind the mortgage industry of its role in all of this. While the headlines are centered on the less than 1% market, greenhouse gases produced by UK households still account for around 15% of our total emissions, or 22% when energy production is factored in. This means that we need drastic changes in the energy efficiency of UK homes if we are to meet the UK goal of achieving net zero carbon emissions by 2050.
We have 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 expected to continue, research from the Intermediary Mortgage Lenders Association (Imla) showing that 74% of lenders expect demand for such products to increase over the next several years.
We must guide customers to positive decisions that will benefit them and the planet
However, still more action is needed. These “green” mortgages are only available to a small proportion of homeowners, including those who are self-built for sustainability and buyers of new properties, who typically have higher energy performance certificate scores ( EPC). For those in used housing, improving EPC ratings may be less clear or less practical.
Closer collaboration between lenders and advisers is needed on the issue of improving UK housing stock. It would be interesting to understand, for example, what proportion of advisors feel confident in discussing green mortgages, or when to recommend them. We need to prevent this from becoming a conversation for new customers.
This mainly involves improving engagement in order to avoid a two-way market; if those who live in homes with higher EPC ratings have access to the best-fit prices and everyone is locked into what could be a new form of mortgage prisoner.
Imla found that while the biggest barrier for homeowners wanting to make energy efficiency improvements is cost (27%), never considering a green mortgage (19%), and not sure where start to apply (16%) were good runners. -at the top. This desperately needs to change – quickly. We cannot allow consumer naivety to sabotage the need for positive change because it reflects failure on our part.
We could have a new form of mortgage prisoner
A good start would be to improve owner engagement with EPCs. About half of UK households have an EPC; the others are not tracked, so they could be very ineffective. It also plays into the fact that EPCs only last for 10 years, so many who have had their properties appraised before may soon need a new certificate.
Helping to change this is in the best interests of lenders. The Department for Business, Energy & Industrial Strategy has several ongoing consultations on how it can involve lenders in EPC reports. At the heart of this, lenders would need to understand the average EPC score of their pocket books, which would also require EPC registration at all levels to operate effectively.
If the proposals go ahead as planned, lenders will be more likely to incorporate EPC requirements into their product lines, which would help build engagement. Then, once a property has an EPC in place, homeowners will be much clearer about how their home is performing, as well as what steps they can take to improve it.
Advisors can also encourage energy efficiency. Since up-front costs are the biggest hurdle faced by homeowners looking to renovate their homes, the option of accessing additional loans to fund these changes might be the solution.
We need drastic changes in the energy efficiency of UK homes
The government has done little in this area other than its green house grant, which was prematurely cut. This is the perfect opportunity for advisors to discuss additional borrowing options, such as additional advances or second loans. As the primary point of contact between consumers and lenders, advisors are in the best position to help borrowers understand their options.
If we are to ensure a prosperous future for generations to come, we must guide our customers to positive decisions that will benefit them and the planet.
Danny Belton is Lender Relations Manager at the Legal and General Mortgage Club