Mortgages linked to EPC ratings under new government plans

The government is considering linking mortgages to green home improvements and could impose targets for lenders if insufficient progress is made.

Related topics:  Mortgages
Rozi Jones
21st October 2021
eco green housing solar house
"If politicians want to make homes more energy-efficient, maybe start with ensuring new builds are correctly constructed before penalising people with higher interest rates."

Mortgage lenders could be asked to disclose the energy efficiency performance of homes in their portfolio under plans outlined in the government's net zero strategy, published on Tuesday.

The government said it was working with mortgage lenders to help them develop green finance products "targeted at consumer types who will be impacted by future regulation".

The government said it could introduce voluntary targets for lenders to improve the average EPC rating of the homes in their lending portfolio to at least band C by 2030.

However the plans have been criticised by MPs, trade bodies and mortgage brokers, who warned that the move could create a "two-tier property market".

Liberal Democrat leader Ed Davey said: “This is an insult to first-time buyers who have scraped and saved to get on the housing ladder.

“The Conservatives must cancel this plan immediately. Ministers are attempting to clean up their own mess by forcing innocent first-time buyers to fork out thousands of pounds extra, just as an interest rate rise is about to bite.”

Lewis Shaw, founder of Mansfield-based Shaw Financial Services, added: "Like most of Boris's ideas, it's another political meringue, sweet and lightweight but with very little substance. If politicians want to make homes more energy-efficient, maybe start with ensuring new builds are correctly constructed before penalising people with higher interest rates. Green mortgages are one part of the fix, however the bigger part is surely to help people that need to insulate their homes do so with a green grants scheme. Regarding older properties, it could easily risk a two-tier property market. That said, there would need to be some allowance for listed buildings and the like. The most significant impact would almost certainly affect first-time buyers and younger people disproportionately, as the homes they buy tend to be smaller and older."

Matthew Fleming-Duffy, founder of independent mortgage broker, Cherry Mortgage & Finance, commented: "With an estimated 17 million homes having an Energy Performance Certificate (EPC) rating below B and C, the UK has a lot of work to do in retrofitting these properties with energy-efficient improvements to meet its ambitious net zero targets by 2050. The enormity of this task cannot be understated. England has some of the oldest housing stock in the world, with 21% of dwellings built before 1919 and 16% built between 1919 and 1945, and older properties tend to be colder and often more challenging, and expensive, to improve. However, if Green Mortgages – where the cost of the borrowing is linked to the energy performance of the property – become more widely available, huge numbers of homeowners would be encouraged to take positive action in making their homes more energy efficient. While every step the Government takes in this direction should be applauded, mortgage providers can't just be expected to just cut their margins, as this is an unsustainable practice. Green mortgages are generally heralded as lower risk loans so the PRA could reduce the lender’s capital requirements for this type of product. This in turn would reduce the costs associated with providing a green mortgage and could be passed on to the consumer in the form of discounts and incentives."

More like this
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.