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LENDERS mortgage initiative to promote household efficiency agenda
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LENDERS mortgage initiative to promote household efficiency agenda

Last week George Osborne announced his plans for the “largest house-building programme since the 1970s” and pledged to deliver 400,000 new homes by 2020. The UK’s house building crisis has been well documented throughout the year, with the shortage of available homes taking centre stage in the general election and in the following months. It was therefore no great shock when the chancellor committed to a new target in his Spending Review, particularly considering the government’s push on home ownership.

Overlooking the fact that this 400,000 is actually a relatively small number, equalling less than 100,000 a year between now and 2020’s election - actually a reduction on current rates of construction - the real point of contention for many is the lack of energy efficiency standards for these homes.

The UK was ready to push on with zero carbon homes policy due to come into force in 2016 but when this was scrapped in July, the country was left with the disappointing energy efficiency targets of the last update to building regulations.

The Department of Communities and Local Government (DCLG) this week confirmed that the European nearly zero energy building (NZEB) standard would be adopted in 2020, meaning that the chancellor’s new homes can be rushed through before any substantial standards are put in place.

It has been argued the government’s move away from domestic energy efficiency – scrapping the Green Deal, limiting ECO before replacing it altogether in 2017 and the cancellation of zero carbon homes policy – suggests it is not interested in improving the existing UK housing stock or any addition to it until at least 2020. But with homes accounting for around a third of UK energy usage and carbon emissions, and homeowners taking greater ownership over their energy bills, the private sector could be preparing to step up and deliver a potential driver for change.

Nationwide Building Society has announced that it will chair a research group investigating how energy efficiency could be incorporated into mortgage affordability calculations. The LENDERS project, partly funded by the government-sponsored Innovate UK agency, will use the Energy Performance Certificate (EPC) to estimate the energy performance and associated costs of individual homes and judge how they feature into household expenditure. This information can then be used to inform how much homeowners can afford to borrow, effectively creating a link between energy efficiency and value.

Andrew Baddeley-Chappell, head of mortgage policy at Nationwide, explained: “Fuel charges are the largest unavoidable household costs and may vary by a large degree. Such detailed data could allow lenders to acknowledge that smaller fuel costs could allow more to be borrowed on the mortgage, nudge buyers towards more efficient buildings and potentially reflect the added value of such properties.”

If successful the UK Green Building Council (UKGBC), which is also contributing to the project, says this could encourage buyers towards homes with lower energy bills, increase their willingness to invest in energy efficiency and could lead to poor performing homes disappearing from the market.

Richard Twinn, policy advisor for UKGBC, said: “If it was possible for lenders to offer more money based on lower energy use that should over time allow value to reflect that, which will become more ingrained in the market. More efficient properties will be valued slightly higher and you’ll start to see less efficient properties become more difficult for people to afford, which frankly we always knew.”

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Affordability calculations

The LENDERS project will run for 18 months and builds on research already conducted this year by the UKGBC which investigated the extent to which mortgage lenders could estimate energy costs using data like EPC ratings. It concluded that estimates could improve mortgage affordability calculations, “potentially allowing banks to better manage lending risks.”

This in itself represents a key motivation for lenders to get involved in the energy efficiency agenda and is particularly true for Nationwide, which recently recorded a record high for mortgage lending for the six months to 30 September (£14.9 billion). EPCs are already required on every home for sale, so the requirements for LENDERS are in place with the information already available for use.

If the project is successful in promoting energy efficiency to house buyers, the lack of government direction on the subject will become less important as the private sector will have in effect implemented its own drivers to the market. Of course using EPCs to do this will mean, in a roundabout way, that the government is also partly responsible for the change and according to Twinn, this will not be the silver bullet to the country’s domestic energy efficiency problems.

“Judging by the last few months we’ve had I don’t think we’re going to get anything that ambitious [from government policy] over the next few years so it’s probably sensible to try as many industry initiatives as we can. But at the same time we need to upgrade 17 million homes in England alone and you’re not going to do that just through one particular finance mechanism. A range will be needed and government needs to step up to fill some of those but this mortgage element could help,” he said.

And it could mean great things for the retrofit sector, which is not currently being served by government thanks to the scrapping of the Green Deal. ECO serves only the most fuel poor, with able to pay homeowners now in need of an extra push to commit to work. This mortgage option could provide that push, and even help the UK achieve the energy and carbon reduction targets that are seem to be put in danger every time a DECC or Treasury minister opens his or her mouth. 

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Editorial

Liam Stoker Editor-in-chief, Current±

Liam is editor-in-chief at Solar Media, the publisher of Current± and other titles including Solar Power Portal. Liam edits the UK-facing titles and has done since 2015, having joined the publisher as a reporter the same year. Previously, Liam has held positions at other London-based B2B publishers such as Pageant Media and Progressive Media.

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