Last week we spoke about buyers’ and renters’ ever-growing desire to live in sustainable properties, not least for their impact on the environment but also for their lower running costs. What we also mentioned is that those living in energy inefficient homes could soon find it harder to get a mortgage. Today, we are looking at a report published by the Department for Business, Energy and Industrial Strategy (BEIS), that has called on lenders to help improve energy performance of properties. The Government is planning to publish its response later this year.
BEIS said mortgage lenders could play a vital role in driving the energy performance improvements required to meet the UK’s 2050 net zero carbon emissions target. In relation to lenders, the report stated, ‘they are uniquely placed to influence mortgagors at critical trigger points, such as home purchase, renovation or re-mortgage.’
BEIS recommended that lenders consider energy efficiency as part of their mortgage assessment criteria, and review rules to encourage green mortgages. In a nutshell, mortgage lenders may soon be required to track and annually disclose the average Energy Performance Certificate rating of the properties they lend against. The Government could then use this information to publish ‘lender league tables’ based on the average EPC ratings within their portfolios.
Lenders could also be set ambitious targets relating to energy performance and be required to factor these into their lending decisions. The move is intended to send a clear signal to borrowers about the importance of their homes’ energy performance.
According to the Climate Change Committee, there are currently about 29 million homes in the UK, of which 19 million have an EPC lower than C. That’s potentially 19 million homes that will need improvements to make them more energy efficient. Improvements may include things like fitting loft, under floor or cavity wall insulation; upgrading to double or triple glazed windows; draught proofing and hot water tank insulation. According to BEIS, the average energy running costs for a home with an EPC rating of C in England are around £300 cheaper than for a band D home, and £740 less than for a band E home. However, the average cost to achieve an EPC rating of C or above is estimated at £4000.
If lenders have to start declining loan applications in order to improve their average EPC ratings on a published league table, borrowers living in poorly-rated properties may find it difficult to sell their property or even remortgage.
In my opinion, much like the cladding scandal, it once again risks creating a new cohort of mortgage prisoners trapped in energy-inefficient homes and paying their lender’s higher standard variable rate because they are not able to remortgage.
Some lenders are already offering green mortgages which provide a lower rate for customers in energy-efficient homes – often those rated C and above. So, it is easy to see the direction of travel with this. It could seriously devalue properties, potentially creating negative equity for those with high loan-to-value mortgages. It could also create problems for older borrowers who want to move in retirement, but who do not have the income to fund improvements to the efficiency standards of their property before selling.
If you are concerned about the energy efficiency of your property, and how it could impact its saleability now or in the future, WeBuyProperty will be happy to discuss this with you and give you a no obligation valuation for what it would be worth in the current market if you were to sell for cash.
Call: 0207 449 9797