New 'green' mortgages to consider energy efficiency in affordability calculations

A new scheme aims to launch the first mortgages and additional borrowing in the UK that recognise home energy efficiency in their affordability calculations.

Related topics:  Mortgages
Rozi Jones
30th June 2020
eco green housing solar house
"There is a lack of understanding within the industry about how we put a value on low carbon homes, making it challenging to support members who are buying or looking to adapt their existing property."

The ‘VALUER Project’ is a collection of industry partners led by Monmouthshire Building Society, The Royal Institution of Chartered Surveyors (RICS), Rightmove and zero carbon homebuilder and sustainable energy service provider Sero.

As part of the project, new green mortgages and additional borrowing products will be made available to two 'geofenced' pilot areas in south Wales. This will include a number of new build low energy homes at Parc Eirin in Tonyrefail and also the Eastern High development in Cardiff, as well as existing homes in the area looking to make retrofit energy improvements.

The new homes will include a mix of solar panels, energy storage and smart energy systems, being installed and managed by Sero Energy, to minimise the energy costs for residents. New home purchasers will be offered pilot mortgage products that include assessments of energy efficiency and other new considerations.

To support this work, Monmouthshire Building Society will be the first mortgage lender in the UK to adopt the findings from a previous piece of research known as the 'LENDERS' project and adapt its affordability calculation tool to more accurately reflect actual home energy bills. This could potentially increase the maximum affordable mortgage by up to £12,000 for a very low energy home, compared to a poorly performing property.

Rightmove will also be bringing ‘green’ information to its Surveyor Comparator Tool that will draw on Energy Performance Certificates (EPC) and energy efficiency information to support surveyors as they compare and value ‘green’ features in homes. It will also use advanced analytics to bring green features to to its AVM to understand their impact on value.

The project is funded by the Department for Business Energy and Industrial Strategy, Green Home Finance Innovation Fund, and is supported by the Green Finance Institute.

Dawn Gunter, chief operating officer at Monmouthshire Building Society, said: “Despite the growing concern around the climate emergency and the widespread acknowledgement that we need to decarbonise homes – currently there is a lack of understanding within the industry about how we put a value on low carbon homes, making it challenging to support members who are buying or looking to adapt their existing property. As a member led mutual, we are committed to leading the way in helping bring about this change and are looking forward to getting this pilot off the ground, which we are confident will be a catalyst for real change in the industry moving forward.”

Sero’s co-founder, Andy Sutton, commented: “There is little current evidence that the market places a value difference between high and low energy homes. Identifying this value difference is key to enabling building more low energy new homes and to the low energy refurbishments of our existing houses. The end value underpins the finances and showing low energy homes have better future value than high energy homes will help support the higher cost of building or refurbishing these homes.

“It is also very positive to see this project implementing the findings of the Innovate UK part-funded 'LENDERS' project, led by Nationwide Building Society, that demonstrated how better account of energy bills could be made in mortgage calculations.”

Sarah Sayce of the University of Reading, who is working in an advisory capacity to the project, added: “Residential buildings are a major source of carbon emissions; moving zero-carbon standards in both new stock and by retrofitting existing buildings is critical to addressing climate change. Whilst mandated government standards will certainly be required, it is important that the private sector supports, encourages and rewards behaviour change by buyers and owners. Differential lending policies, better market data and refreshed guidance to valuers are all key drivers of achieving such change; this project should prove to be a flagship of what can be achieved by working together.”

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