Mortgages for a green future – Birmingham Post article 03.06.2021

Forty-three per cent of consumers have never heard of a green mortgage, according to the Intermediary Mortgage Lenders Association (IMLA).

But could they prove to be the future?

Just as sales of electric cars are building traction so green mortgages will follow suit, it is suggested.

Much depends on the Government and to what extent they put the squeeze on.

As with the ban on sales of petrol and diesel cars from 2030, a tough target has been set of the UK being a carbon net zero economy by 2050, meaning a drastic reduction in carbon emissions from homes as well as transport, farming and industry is needed.

As with electric cars, it is cost which is putting people off.

Air source heat pumps (ASHP) are in vogue as the Government pushes the agenda. However, the Energy Saving Trust estimates that the cost of a typical ASHP system ranges between £9,000 and £11,000, a significant sum.

So, where do green mortgages fit in.

The World Green Building Council defines a green mortgage as where a bank or mortgage lender offers a house buyer preferential terms if they can demonstrate that the property for which they are borrowing meets certain environmental standards. “In other words, a green mortgage is a mortgage specifically targeted at green buildings. As an incentive for the borrower to either buy a green building or to renovate an existing one to make it greener, the bank would offer them either a lower interest rate or an increased loan amount.”

And green mortgages are already with us.

Both Barclays and Nationwide have a green mortgage range that offers preferential rates to those buying a new-build property linked to high scoring Energy Performance Certificate results.

IMLA expects others will launch even though a survey it conducted found that 43 per cent of lenders say there is currently little demand for green mortgages. The research found that 57 per cent of lenders plan to launch a green mortgage offering.

The Association continued: “As with all attempts at innovation, green mortgages have come under fire from those who believe the market has too many barriers to entry.”

It cites the upfront costs, the length of time required to reap the rewards, mismatched incentives in the case of tenants and landlords, where the person making the investment is not necessarily the one to benefit, and the lack of financial incentives from government.

Not surprising then that there was outrage when the Government recently scrapped the Green Homes Grant scheme designed to help householders in England insulate their homes.

IMLA commented: “We need more collaboration between government, the banking sector and industry stakeholders to better understand the barriers facing consumers and the intervention that is needed to overcome those challenges. The green mortgage market can play a vital role in the journey to net zero going forward.”

Moneyfacts added: “The likelihood is that green mortgages will grow in popularity over the coming years. As consumers and the Government become increasingly aware of the negative impact energy consumption is having on the environment and the need to reduce emissions, it is likely that more incentives, such as lower rates offered through green mortgages, will be launched to help encourage greener lifestyles.”

Logic says that energy efficiency and green mortgages go hand in hand, and the more Government pressures people to change their home heating systems the more likely they are to opt for green mortgages too.

But, with 29 million existing homes in the UK to address, that is an awful lot of voters to upset, so the politicians will have to tread carefully.