"Due to the proliferation of green options available throughout the buy-to-let and residential mortgages, this has the potential to be one of the key growth areas in 2023."
I’m writing this following the conclusion of COP27, the aim of which was to build on the outcomes of COP26 to take action and tackle the climate emergency. This conference generated plenty of taking points and further emphasised both the gravity and enormity of the current and future situation. Although, as always, actions do speak louder than words.
From a housing and mortgage market perspective, it’s important we recognise the part we have to play and this challenge is evident as UK homes remain the least energy efficient in Europe with the heating of homes representing 14% of our total carbon emissions. This was a statistic highlighted in UK Finance’s new report - Net Zero Homes: Time for a reset which proposes radical action to achieve a Net Zero housing stock in the UK. Adding that it is likely to cost UK homeowners around £300 billion to reach the Government’s required Energy Performance Certificate ratings.
Digging deeper into what is a fascinating and enlightening read, the report sets out a series of recommendations which broadly work within the key targets and measurement system laid out in the Government’s Net Zero Strategy. These recommendations seek to fire up the Net Zero Homes agenda in a systematic way which does not disadvantage more vulnerable consumers, blight properties and bake in unnecessary costs.
It also points out that the banking and finance sector is playing, and will continue to play, a key part in the transition to Net Zero homes but the targets cannot be achieved without cooperation across public and private sectors. And with 35% of homes in the UK owner-occupied and mortgage-free, the lending industry cannot reach all homeowners alone.
But what should lenders and intermediaries be doing? In conjunction with proposed Government legislation which is encouraging homeowners and landlords to have more energy-efficient homes, it’s reassuring to see many lenders from all sectors of the market integrate a range of innovative green mortgage offerings into their overall proposition.
According to recently-released market insight from Mortgage Advice Bureau (MAB), over half of lenders now offer green mortgage products following a 76% year-on-year rise, with 98% indicating they will offer them in the future if they don’t already.
Furthermore, one in 10 lenders say green mortgages will, in time, completely replace all existing products on offer. When it comes to how more environmentally friendly homes will be built, it is clear lenders see this as a joint challenge, with 95% saying it’s the responsibility of both builders and lenders to provide more energy-efficient homes.
This is a positive trend but it’s prudent to emphasise obstacles do remain and work needs to be done from an educational standpoint. Additional data from MAB outlined 63% of mortgage advisers say their clients have never heard of the term ‘green mortgage’ despite the increasing number of specialist green deals available. It also found 83% of advisers believe their clients have no understanding of green mortgages.
On a more progressive note, 88% of advisers confirmed the topic of green mortgages has come up in conversation in the last 12 months. However, 84% said the topic was prompted by them, with only 3% saying the topic was prompted by their clients.
Due to the proliferation of green options available throughout the buy-to-let and residential mortgages, this has the potential to be one of the key growth areas in 2023. For lenders, this means a combination of greater transparency around their green offerings and developing more innovative and flexible ways to reward an array of borrowers who are making conscious decisions to purchase more energy-efficient properties or make energy-related improvements.
For intermediaries, it’s about keeping up to date with green product offerings from all lenders and ensuring clients are fully aware of the available options and how they could potentially benefit. In order to continue this forward momentum and close this education gap, lenders, intermediaries and borrowers must embark on a more collaborative approach to ensure the mortgage market makes the impact the green agenda needs and deserves.
