New lender EPC requirements could create 'new cohort of mortgage prisoners', IMLA warns

Rozi Jones
17th February 2021
mortgage house prisoner
"It makes no sense to create artificial competition between lenders which could result in their avoiding lending on properties that are less energy-efficient and therefore less desirable."

A new government consultation has proposed that lenders should annually disclose the average EPC rating of all properties they lend against.

The consultation from the Department for Business, Energy and Industrial Strategy (BEIS) proposed that lenders should annually disclose portfolio-wide EPC data, as well as the gross value of lending for energy improvement works. The Government hopes that the measures could allow comparisons to be made between lenders and provide a picture of how energy performance could influence lending decisions.

However the Intermediary Mortgage Lenders Association (IMLA) has warned that if enacted, the proposals would have "significant implications for both bank and non-bank lenders and could even fail to effectively help address the UK’s energy inefficient housing".

IMLA says the proposals risk creating a "time-wasting paperchase" which will not achieve the desired results and could create a new cohort of mortgage prisoners trapped in less efficient homes. In its response to BEIS, IMLA said it was concerned that the compilation of an energy efficiency “league table” could cause lenders to base their lending decisions on a property’s energy efficiency, rather than on a borrower’s needs.

IMLA rejects the implication in the consultation that lenders, rather than property owners, are responsible for the energy efficiency of the properties mortgaged to them. It instead argues for a thorough review of Energy Performance Certificates, to ensure that they are accurate and fit for purpose. It then suggests that property owners should be required to obtain an EPC and that all inspections should be carried out by appropriately qualified assessors, with the results held on a central, easily-accessible database.

IMLA also notes that it was unclear from the consultation whether the mortgage market’s regulatory bodies, the FCA and PRA, had been fully consulted about the proposals and has pointed towards work already conducted as part of the regulators’ Climate Risk Financial Forum.

Kate Davies, executive director at IMLA, said: “Lenders are taking the challenges posed by climate change very seriously, which is why many have already made significant moves to understand and prepare for the most immediate risks posed by our changing climate. They also recognise the important role the mortgage market has to play, with a growing number now offering ‘green mortgages’ to incentivise consumers to improve their property’s energy efficiency.

“However, these latest proposals from BEIS are highly unlikely to bring about real change. Rather, they would oblige lenders to devote way too much time compiling and disclosing data in an exercise which - at the end of the day – won’t change a single low-energy lightbulb. It makes more sense to ensure that property owners have really accurate information about the energy efficiency of their property – and the best place to start is by ensuring that EPCs are really fit for purpose. If a property’s energy efficiency is reflected in its value, homeowners will be incentivised to make improvements – which can be financed by a combination of loans, for those who can afford them, and Government grants to help those who cannot. It makes no sense to create artificial competition between lenders which could result in their avoiding lending on properties that are less energy-efficient and therefore less desirable. In the worst case this could lead to some borrowers being unable to re-mortgage or sell. It is critical that this is avoided.

“Tackling the detail behind Britain’s response to achieving net-zero carbon emissions by 2050 is a huge challenge. But rather than creating a distracting paperchase for lenders or imposing penalties if they fail to meet arbitrary targets, reducing our carbon emissions will require rather more fundamental cross-departmental thinking on where responsibility lies and how real change can be incentivised and encouraged. It will also need major investment to drive energy efficiency in the UK’s existing housing stock. These latest proposals from BEIS fall far short of the ambition needed."

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