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L and G Mortgage Club | The Role of Green Mortgages | 2021

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Several factors require consideration in the home-buying process, varying by buyer priorities. Location, size, number of bedrooms, garden dimensions, and the property’s age are all important. Many choose to purchase a new-build home, an entirely justified choice.

Advantages of New-Build Homes

Purchasing a newly constructed home has several benefits. Buyers can move in with minimal renovations and customise the house. Additionally, a warranty covering unforeseen issues provides extra security. The buying process tends to be smoother, avoiding property chain complexities. A key overlooked benefit is the substantial annual energy savings new builds offer.

Energy Efficiency in Modern Homes

Modern new-build properties prioritise energy efficiency due to the Energy Performance Certificates (EPC) requirement since 2007. Most of these properties currently achieve a ‘B’ rating. However, future innovations are set to produce more ‘A’ rated homes from 2023 onwards.

Government Commitment to Carbon Reduction

This shift aligns with the UK government’s aim to reduce carbon emissions to zero by 2050. The residential sector accounts for approximately 15% of the country’s greenhouse gas emissions. Thus, improving our homes’ ecological performance is crucial for meeting these targets.

Initiatives to Enhance Energy Efficiency

The UK government is committed to improving its carbon footprint through various initiatives. Although the Green Homes Grant saw limited success, other schemes aim to enhance residential properties’ environmental performance. The Future Homes Standard, set for full implementation in 2025, aims to elevate new homes to world-leading energy efficiency levels.

The Role of Builders and the Mortgage Industry

Builders and housing associations are already exploring ways to implement these improvements. However, the responsibility doesn’t rest solely on housebuilders. The mortgage industry also has a role, with green mortgages and green agenda vital in this endeavour.

The Appeal and Scarcity of Green Mortgages

Green mortgages appeal to consumers, often featuring preferential rates or cashback incentives for homes with an EPC rating of ‘C’ or higher. Surprisingly, these mortgages have not yet gained widespread traction. Only a limited number of lenders offer such financial products. The reasons behind this scarcity warrant examination.

Issues facing the surge in sustainability

The criteria for EPC ratings in home transactions were only introduced in 2007. Thus, many properties built before this do not qualify for eco-friendly mortgages.

Lack of Consumer Awareness

Moreover, consumers are generally unaware of these mortgage products, which could explain their limited adoption. Educating consumers on enhancing EPC ratings is essential to upgrading older housing and making it eco-friendly. Green mortgages are just one such option.

Questioning Demand for Green Mortgages

However, it raises the question of whether there is genuine demand for these mortgages. Preferences vary, and energy efficiency may not be a top priority for buyers. Size, location, and other factors often take precedence.

Challenges in Constructing Energy-Efficient Homes

Beyond green mortgages, the housing industry faces challenges in building energy-efficient homes. The UK’s housing demand far exceeds supply, and housing associations face resource and capacity limitations that affect their ability to build homes quickly.

Modern Methods of Construction

Modern construction methods (MMC) may grow to meet the demand for eco-friendly homes. MMC aims to improve construction efficiency and manage site costs effectively.

Concerns About EPC Certificate Legitimacy

Additionally, there are concerns about the legitimacy of EPC certificates. A recent survey found that over 30% of valuers consider EPCs unreliable. This questions the foundation of our energy performance assessments.

What can the mortgage industry do?

The mortgage industry plays a crucial role in reducing residential property pollution. This effort supports the UK’s goal to become a zero-emissions country by 2050. Firstly, we should educate borrowers about green mortgages and their benefits. Making savings clear in pounds and pence could increase green mortgage popularity.

Advisers must inform customers about their EPC rating and ways to improve it. If a property already has an EPC rating, it can be found on the Government website. If not, accredited assessors can help customers obtain an EPC certificate. Those seeking to improve their EPC rating may need extra borrowing. Here, advisers play a key role in finding suitable consumer borrowing options.

A green mortgage might not always be the best option for every borrower. Current products offer up to £500 cashback based on the property’s EPC rating. But is this incentive enough? Perhaps more lucrative incentives would make green mortgages more appealing.

Secondly, a green mortgage may not be the best or most suitable mortgage for the borrower. Current products offer up to £500 cashback (depending on the EPC rating of the bought property), but is this enough? Perhaps we can offer more lucrative incentives to ensure that a green mortgage is indeed the best solution for the consumer.

The market should strive to make green mortgages a mainstream option. Homeowners with an EPC rating of ‘D’ or below need proper incentives to improve their properties. Could lenders provide this through their products?

Lenders and brokers could develop green propositions, making green mortgages more appealing. Partnering with EPC certificate providers can raise awareness and improve EPC standards. This could help alleviate existing concerns.

The UK must improve across many industries to tackle climate change. The mortgage and housing sectors are no exceptions. The market must drive better performance for both new and old houses. At the same time, it should provide suitable and affordable products for consumers.

Connect, a leading mortgage network promotes eco-conscious principles and sustainability within its services. Our dedication surpasses conventional mortgage offerings; we actively support and introduce eco-friendly mortgages to the market.

These specialised financial products encourage advisers to discuss green mortgage options with clients. In some cases, advisers recommend energy-efficient upgrades to properties. This approach reduces carbon emissions and fosters a sustainable future.

Connect collaborates with lenders and the L&G Mortgage Club, sharing our commitment to green initiatives. These partnerships provide mortgage options that incentivise eco-friendly housing choices. By aligning the financial sector with the green agenda, Connect drives positive change in the real estate market. We promote energy-efficient homes, contributing to a more environmentally responsible mortgage landscape.