Green Mortgages November 2022 by Key Media

Champion of the Mortgage Professional

GREEN MORTGAGES

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November 2022

A GREENER FUTURE FOR MORTGAGES

Complementing green initiatives in the mortgage market

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For the use of mortgage intermediaries and other professionals only. If you do not have professional experience, you should not rely on the information contained in this communication. If you are a professional and you reproduce any part of the information contained in this communication, to be used with or to advise private clients, you must ensure it conforms to the Financial Conduct Authority’s advising and selling rules. This information is correct as of August 2022 and is relevant to Halifax products and services only. Halifax is a division of Bank of Scotland plc. Registered in Scotland No. SC327000. Registered Office: The Mound, Edinburgh EH1 1YZ. Bank of Scotland plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 169628

EDITORIAL

COMMENT Managing Editor Paul Lucas paul.lucas@keymedia.com Editor Simon Meadows simon.meadows@keymedia.com News Editor Jake Carter jake.carter@keymedia.com News Editor Richard Torne richard.torne@keymedia.com News Writer Rommel Lontayao Commercial Director Matt Bond matt.bond@keymedia.com Advertising Sales Executive Jordan Ashford jordan.ashford@keymedia.com Campaign Manager Amie Suttie amie.suttie@keymedia.com Campaign Coordinator Raniella Alonzo raniella.alonzo@keymedia.com Content Editor Kel Pero Production Manager Monica Lalisan Production Coordinators Loiza Razon, Kat Guzman Designer Khaye Cortez Head of Marketing Robyn Ashman robyn.ashman@keymedia.com

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4 Craig Calder Greening the mortgage market

he relationship between property and the environment has never been an easy one. One man’s palace can be another man’s eyesore, and development doesn’t always sit well with green campaigners. But the green agenda has an increasingly wide audience now. Green has gone mainstream. Mortgage lenders now are ever more conscious of the need to embrace green matters – not for the so-called kudos it gives them, but because it’s become everyone’s issue. Some of the executives in those boardrooms today have children of their own and likely share the worries of millions of people around the world for the future of the planet. They also understand the need for borrowers to be able to afford their household bills and the renovations required to meet environmental legislation, should they wish to let their properties. Halifax Intermediaries joined forces with Mortgage Introducer to host this month’s special round table discussion about how the industry is addressing sustainability, especially against the backdrop of a cost-of-living crisis and rising energy bills. The panel contained a wealth of expertise and insight, from both the lending and broker communities, as they discussed the innovative initiatives the market is embracing to help homeowners be more energysaving, but also mortgages specially designed with a greener approach to borrowing. What emerged was a genuine passion for tackling the problem head-on – a passion that transcends the rather lazy and dated preconception that financial services are simply in business for the bottom line. There’s nothing wrong at all, of course, with wanting to be financially successful and to enjoy the fruits of one’s labours, but as the climate changes and bushfires and flooding grip far-flung parts of the world, we are all waking up to the realisation that there’s no point in making money if our descendants don’t survive to inherit it. It’s a good time to go green.

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Contents

The green revolution

6 Gareth Griffiths How lending can be part of the move toward green 8 Brokers are key messengers for Halifax’s green good news Amanda Bryden discusses the relationship between Halifax Intermediaries and the broker community 10 Round table: A greener future for mortgages Making mortgages part of the solution 16 Promoting green initiatives Growing interest in greener properties 17 The impact of EPC ratings on home sales More buyers and sellers are thinking green 18 Green: key facts and figures A look at the current data behind the green mortgage market

Simon Meadows

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REVIEW

GREEN MORTGAGES

Painting a greener picture for the mortgage market Craig Calder director of mortgages, Barclays

he transition to a low-carbon economy is today’s defining opportunity for innovation and growth. There is a significant opportunity for Barclays to play a leading role in helping to meet the demand for climate change-related financing and in supporting the energy transition, channelling investment into new green technologies infrastructure projects that will build up low-carbon capacity and capability. Our climate strategy means Barclays are rapidly expanding our green and sustainable financing activities, whilst reducing our financed emissions, focusing on the highest-emitting sectors first. We have already facilitated £74bn of green financing. This includes landmark projects such as supporting the UK government in issuing their first green bond, which will finance projects such as offshore wind and schemes to decarbonise homes and buildings. We were also one of the first banks to announce our ambition to be a net-zero bank by 2050 and, from a mortgage market perspective, the first major UK lender to offer a product that helps buyers to purchase a green new-build home. Looking back to the initial launch of the Barclays Green Home Mortgage in April 2018, the reaction from the lending and intermediary community was extremely positive, and this generated a great deal of additional interest and discussion around this product type at the time. Since then, we have completed over 9,000 green mortgages.

GREEN MORTGAGES NOVEMBER 2022

It’s fair to say that the green mortgage market still has plenty of room for growth. In the wake of energy price hikes, awareness around the benefits of increased energy efficiency within the home is certainly on the up, and this is translating into some important forward momentum being experienced across the green mortgage space. With that in mind, it was interesting to see that searches for green mortgages grew by over a third (34 per cent) in July on Legal & General’s SmartrCriteria system.* This energy-efficiency drive could also see UK homeowners spend more than £16.3bn on energy-saving home improvements over the next 12 months. According to research from MyGlazing.com, on average, homeowners are planning to spend £2,792 on energy-efficient home improvements and renovations over the next 12 months. Sixteen per cent plan to spend more than £5,000, and those in the baby boomer generation (aged 55 to 73) are set to spend the most, with the average spend among the age group being £3,401.** In addition, a survey published on the 30 August 2022 by Kingfisher – the owner of B&Q and Screwfix – of 2,000 UK adults who own or rent property indicated that 60 per cent are more interested in energy efficiency than they had previously been, due to recent rising bills. However, just 40 per cent know their home’s EPC rating. Thirtyfour per cent were said to be planning energy efficiency improvements in the coming year, with the most popular measures being double or triple glazing and wall insulation.*** The survey also found that rented properties are, on average, more energyefficient than owner-occupied homes. However, 72 per cent of renters want their landlords to do more to improve the energy efficiency of their properties,

while only one in five (20 per cent) said their landlords had made improvements in the past year. Turning our attention to a buy-to-let sector that is embracing a range of green mortgage initiatives, at the beginning of the year we launched our first green BTL mortgage. This is available for new-build purchases that have an energy efficiency rating of 81 or above, or are in energy efficiency bands A or B – and, again, this has been met with a high degree of enthusiasm from intermediary partners and landlords who are looking to make greener choices. It’s been a huge positive to see a number of green mortgage options emerge to reward more environmentally conscious property purchases in the BTL, mainstream, and specialist residential lending markets. Such progression is vital in delivering a greater range of solutions for potential buyers, existing homeowners, and landlords who are considering the financial benefits of opting for more energyefficient homes. Looking forward, there remains room for sizable growth within this sector, and intermediaries will continue to play a central role in raising further awareness around green mortgage products, energy efficiency in the home, EPCs, retrofitting, and other factors that can benefit a range of borrowers over the longer and shorter term. * https://www.financialreporter. co.uk/mortgages/borrowers-consider-green-mortgages-amidst-mounting-energy-bills.html **UK homeowners set to invest over £16bn on green home improvements | Property Reporter ***Energy inefficient homes set to cost households extra £748 in bills from October (kingfisher.com) www.mortgageintroducer.com

SUPPORTING the move to a low-carbon and sustainable lifestyle

Our innovative Green Home Mortgages rewards customers who are buying an energy-efficient new-build home directly from the builder or developer. We’ll offer them a lower rate on certain fixed-rate mortgages compared with the equivalent option from our standard range, as well as some exclusive Green products (subject to lending criteria) Find out more at barclays.co.uk/intermediaries

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REVIEW

GREEN MORTGAGES

Building a net-zero future adopted by some mainstream lenders. Gareth Griffiths CEO, Ecology Building Society

hat do we mean when we talk about ‘green’ mortgages? Here at Ecology, it translates to providing lending for properties or projects that deliver a positive environmental and social impact. We pride ourselves on taking an open-minded, flexible approach, which is different from the automated tick-box processes that many borrowers experience in their hunt for a suitable product. Over the years, not only has this earned Ecology an excellent reputation for customer service, but it has also enabled us to support a diverse array of innovative and unique projects, many of which are providing a blueprint for a more sustainable way of living that may not have been funded otherwise. EMBRACING DIVERSE HOMES AND COMMUNITIES

Ecology’s lending enables housing solutions that are tailored to the individual needs and ambitions of different homeowners and communities, and that support a varied housing mix. Our team understands each project, and our products are structured in a way that recognises and rewards the sustainability objectives of our borrowers. One way that we do this is through our award-winning C-Change mortgages discount, which incentivises the construction and renovation of homes to a high energyefficiency standard through our pricing – Ecology has been providing sustainable mortgages for over 40 years and our approach is now being

GREEN MORTGAGES NOVEMBER 2022

SUPPORTING THE MOST SUSTAINABLE HOMES

Indeed, over recent years we have seen more lenders offering ‘green’ mortgages. While this is a positive trend, it is unfortunate that many of these products simply provide only a marginal discount for properties that are already energy efficient. This does little to move the dial in terms of supporting the decarbonisation of the UK’s housing stock. At Ecology, our lending encourages and accelerates the construction and renovation of the most energy-efficient homes. This year we have made a number of improvements to our sustainable lending proposition. Earlier in the summer we enhanced our range of C-Change mortgages for self- and custom-built projects, increasing the maximum discount for homes built to the highest environmental standards. We also recently became the first lender to launch a cashback option to support the installation of heat pumps. As well as lenders being prepared to step up their game when it comes to support for greener homes, brokers have a vital part to play, too. Given their importance in the marketplace, they are a strong force to accelerate the take-up of green mortgages. Our mortgage team has been encouraged to see growing interest in green mortgages from brokers, and we’ve had an increase in applications coming via the intermediary route. IMPACT THROUGH RETROFITTING EXISTING HOMES

New homes at the cutting edge of sustainability can show us what is possible. However, implementing basic energy-saving measures across our existing housing stock is by far the most significant factor in decarbonising the built environment. Although householders are keen to make their homes more efficient,

there remains a lack of a clear route to trusted independent advice on what needs to be done, how to source a suitable supplier, and how much it’s all going to cost. We’ve been a long-standing supporter of calls for a National Retrofit Strategy to kickstart the retrofit revolution and make warm homes affordable for all as well as reach the government’s goal of netzero emissions by 2050. We’d like to see the government deliver at pace a wide-ranging package to support green building, including grants for energy-efficiency improvements, strengthening the retrofit supply chain, and driving the market for green finance, primarily through changes to the capital weighting system. Not all green measures have a short-term payback period, and so need the right level of government support and private capital funding. All the while gas remains significantly cheaper than electricity per kWh, so we need the investment and fiscal incentives to address this. WORKING TOGETHER FOR A GREENER FUTURE

Looking ahead to COP27, we will be lending our voice to the call for the government to translate ambition into action when it comes to decarbonising our housing stock. At Ecology, we are proud to have made significant recent progress in our own net-zero journey, becoming the first building society to report the carbon footprint of our residential lending and recently publishing our 2030 net-zero goals. We hope that others will be hot on our heels. Through collaboration and knowledge-sharing, we can build a more positive vision for the future, developing a world-leading green finance sector while providing the products and services that are needed to enable low-impact homes and resilient communities. www.mortgageintroducer.com

, We re making a difference Award-winning ethical and sustainable mortgages provider

Ecology is different. Since the beginning, we’ve been dedicated to using the power of finance to deliver positive change through lending for ecological building practices and development of sustainable communities. All our borrowing is funded through our range of simple, transparent savings accounts, and our members know that saving with Ecology is helping to create a better future. We know that purpose-driven finance has a critical role to play in the battle against climate change and the world has finally realised that too.

✓ Pioneering green mortgages since 1981 ✓ Experts in specialist energy-efﬁcient mortgages e.g. self-build, retroﬁt, communities

✓ Flexible decision making on every project ✓ Open to the unusual e.g. wide range of non-standard construction types

Discover more about Ecology

ecology.co.uk 01535 650 770

Building a greener society Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register No. 162090.

INTERVIEW

HALIFAX

Brokers play key role in sharing Halifax’s green message The relationship between Halifax Intermediaries and the broker community is pivotal in highlighting its green initiatives, Amanda Bryden tells Simon Meadows

manda Bryden, head of Halifax Intermediaries & Scottish Widows Bank, believes the lender can lead the green agenda, boosted by the support of the broker community. Bryden has endorsed the importance of good relationships with brokers in developing Halifax’s green programme and truly connecting with homeowners. “This is essential,” she explained. “We start from a very good point, but without these relationships our task would be so much more difficult. If we all work together on this, the results will be much better. The fact that we have great relationships with clubs and networks also means we can take a more strategic approach to coordinating education and communications.” The broker community, Bryden believes, also has a real opportunity to engage with borrowers by including discussion of sustainability in its mortgage advice. Brokers are already on board. “We have some early adopters who actively seek to understand how they can make sustainability part of their client conversations,” she said. “We also have some who are at the beginning or who have yet to start their journey to understanding this area. There is a real opportunity for brokers to reinforce the value of great mortgage advice and bolster this by demonstrating their understanding of the sustainable

GREEN MORTGAGES NOVEMBER 2022

homes challenges and what it means for homeowners, be that addressing immediate desires for a greener home or understanding how to fund retrofitting to future-proof their homes’ value. That is where we, as lenders, have a key role in increasing this engagement.”

hosting a housing forum, attended by stakeholders from right across the housing and mortgage ecosystem, where we discussed how we can work together on key challenges including how to take forward the sustainability challenge.”

“With our excellent relationships across the market and with policy makers, we are uniquely placed to lead the green agenda”

Halifax Intermediaries prides itself on a range of innovations such as its home energy saving tool (HEST), which can be used by brokers to easily initiate discussions with clients about sustainability, encouraging them to consider green home improvements to improve their property’s Energy Performance Certificate (EPC) rating. The tool will also provide an estimated EPC rating and calculate CO2 emissions, as well as giving the indicative costs of work to be undertaken. “We thought carefully about the challenge of changing homeowner behaviour on sustainability and very early on realised that people need help to understand the practical side of what to do to their homes,” said Bryden. “As a bank we do not give advice on specifics of what improvements are suitable, as we leave this to the experts, but we have teamed up with Energy Saving Trust, an independent organisation whose focus is on addressing the climate emergency, and created a positive working partnership to help with our knowledge. It provides an impartial view, helping customers get the answers

PRIDE IN GREEN

As widespread discussion of green issues and energy bills gains traction in all quarters of society, from the House of Commons to the business world and in homes across the UK, Halifax Intermediaries is keen to fully showcase the value of its green initiatives and products. “We want to take a leading role in helping create more consumer demand for sustainable homes and support the market in increasing the supply of and understanding the benefits of sustainable housing,” Bryden enthused. “With our excellent relationships across the market and with policy makers, we are uniquely placed to lead the green agenda. For example, we recently joined colleagues across our intermediary channel in

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INTERVIEW

HALIFAX they need and sharing the factors to consider when hiring tradespeople.” She continued, “As part of this, we realised that their energy savings tool was exactly the sort of help people needed in thinking about their homes, and we launched this through the Halifax public site. This went really well, and we’ve now launched a broker version of the tool through Halifax Intermediaries.” The lender has also developed its Green Living Hubs on its website, to which a client can be signposted to help them understand basics, which it believes is a valuable resource to enable borrowers to gain a better grasp of the issues around sustainable homes, such as the importance of an EPC. It offers help with education and messages for homeowners, including free virtual green events on renewables, covering subjects such as how solar panels work and demystifying heat pumps, alongside considerations of whether these could be the right solution for homeowners considering their options. “As there is so much useful information on sustainability, we thought it would be helpful to create a central place people could access to find everything in one place,” Bryden said. She added that a ring-fenced intermediary version of the Green Living Hub would be coming soon. What did the Halifax Intermediaries head think was the key differentiator of its green approach in an already noisy, competitive marketplace? “Two key things,” she shared. “First, we have already built and launched some of the foundations for helping the market with sustainability. HEST gives brokers and homeowners a tool to help them understand how they can make their homes more sustainable. We also want to build EPC data into applications to help build effective propositions. Secondly, we have the largest Business Development Manager (BDM) support teams in the market, and we are helping to make them experts in the field of sustainability. We want to use this expertise to help the market transition into the green economy by facilitating conversations and holding training events when the market is ready. Watch out for more news soon.” www.mortgageintroducer.com

Amanda Bryden

UNDERSTANDING CUSTOMER BEHAVIOUR

Bryden believes the business she leads can also be high-profile in the drive to improve the EPC rating of the UK’s housing sector. “We have the largest mortgage book and millions of customer relationships through our banking propositions, so we will play a huge role in encouraging sustainable activity,” she said. “We are spending time understanding customer behaviour and what it is that drives them to retrofit, and continually engaging with all stakeholders across the housing sector.” These are, quite clearly, very unsettled times for the UK economy. Concerns over the environment and energy prices have become hot political topics, occupying many hours of debate among our parliamentary representatives in Westminster,

much of it animated. So, what might Halifax Intermediaries seek from the government in terms of reassurance for its industry and, importantly, its customers? “Achieving net-zero targets in housing will require everyone to play a part, and that will include government support in a number of areas,” Bryden suggested. “In order to grab homeowner attention, communication and some sort of incentivisation are required. For example, the cost of changes is high, and the payback period is long, so could parts of the cost be subsidised or could some form of tax incentive be designed?” Finally, she reflected, “Certain populations will simply be unable to pay for improvements, so government support will be essential here and, furthermore, regulation could help in areas such as supply chain.” NOVEMBER 2022 GREEN MORTGAGES

ROUND TABLE

GREEN MORTGAGES

A GREENER FUTURE FOR MORTGAGES Everyone is talking about being ‘greener’ – but could the mortgage industry do more to embrace energy-saving concerns? Simon Meadows covers our latest round table discussion

reen issues have come a long way from when environmental concerns were considered a niche interest, dismissed by many in previous decades as a preoccupation of social activists. Not any longer. An ever-growing awareness of the impact that we are having on our planet has moved the debate from the fringes to the centre ground of our political discussion and filtered into our everyday lives, embraced by everyone from our new sovereign, King Charles, to armies of campaigning schoolchildren. The UK government has, meanwhile, committed to making the UK carbon-neutral by 2050, meaning that for all the CO2 produced in the UK each year, the same amount will be cancelled out by energy-saving measures. With our homes making up an estimated 22 per cent of the UK’s total carbon emissions, we arguably all have a part to play in this. Sustainability is now the buzzword of young and old, it seems, permeating conversations from the breakfast table to the boardroom, and it’s making its mark, too, in the mortgage industry, due to the sector’s inseparable link with property, where so many of our environmental concerns are focused.

Much of the green debate surrounds how we can decarbonise our homes, making them more energyefficient and sustainable, be it with solar panels, heat pumps, or cavity wall insulation. And this debate has gained traction with the recent escalating costs of energy and anxiety over how homeowners might be able to afford to heat their properties. Yet there is still, clearly, a huge amount of work to be done if the UK is to hit its 2050 target. As many as 15 million homes in England and Wales could need energy-efficiency improvements to meet the proposed target of an Energy Performance Certificate

“Now, more than ever, we need to come together and ensure that as a sector, the intermediary market is really leading the charge in the green space” AMANDA BRYDEN

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GREEN MORTGAGES (EPC) band C rating by 2035, according to recent data published by Halifax. Just 10 per cent of pre-1900 homes reached the C band. For the 4.2 million homes built before this date, the average EPC rating was only E. With around 25 million properties in England and Wales, this means 60 per cent of the total housing stock might require work. It is estimated that around a quarter of heat loss from poorly insulated homes is through roofs, a third through external walls, another quarter through doors and windows, and the rest through floors. One of the key differences between older and newer homes that affects energy efficiency is how they are designed to address damp. In older homes, ventilation between floors and ceilings and under roofs is how moisture is dealt with, which in turn means poor heat retention. Modern homes favour damp-proofing under solid-block floors. Other differences include little or no insulation in floors, walls, and ceilings, single-glazed windows, open fireplaces, and lower standards of construction in key areas like doors and windows, causing draughts. Heat lost from homes varies depending not just on the construction, but also on the type of property. Flats are the only type of home that, on average, achieve an EPC rating of at least C. Furthermore, according to figures published by New Scientist, the UK had the worst track record in Europe last year for the installation of heat pumps, a technology many experts view as essential for eliminating the carbon emissions produced by heating homes. They are effectively reverse refrigerators that typically draw their heat from the air or the ground with an electricity-powered pump before increasing the temperature. A total of 42,779 heat pumps were installed in the UK last year (1.48 heat pumps were installed per 1000). At this rate, it would take more than 600 years to reach the Climate Change Committee’s net-zero goal of 27.2 million homes having a heat pump by 2050. The mortgage industry can potentially play a big role in the ongoing drive to make our homes greener, as property buyers seek funding for ecofriendly new-builds or retrofit improvements to older homes. To gain a better understanding of how the sector is addressing sustainability, Mortgage Introducer, in association with Halifax Intermediaries, brought together six highly knowledgeable industry professionals for a discussion. They were: Amanda Bryden, head of Halifax Intermediaries & Scottish

Widows Bank, Lloyds Banking Group; Rebecca Wynne, sustainability proposition manager (homes), Lloyds Banking Group; Grant Hendry, director of sales, Foundation Homeloans; Nicholas Mendes, mortgage technical manager, John Charcol; Daniel Capstick, head of mortgages, Ecology Building Society; and Erika Moreira Baker, senior product manager, Mortgages Sustainability, Barclays UK. SUSTAINABILITY CHALLENGES How did they think the issue of sustainability in the mortgage industry had advanced this year, particularly in light of the economic downturn? Amanda Bryden, from Halifax Intermediaries, acknowledged the hurdles the industry faced. “There is clearly a challenge for both broker and consumer education around sustainability, which is further exacerbated by the cost-of-living crisis and a perception that it is going to cost customers an exorbitant amount of money to make their property more sustainable,” she said. “As lenders, I think the

“There’s very limited choice in terms of what I would describe as green mortgages, which really target the renovation or retrofit market” DANIEL CAPSTICK

key role we have to play is around educating brokers, and in turn customers, that this isn’t necessarily the case. We are embarking on a major internal education programme to enable our team to have a full understanding of the importance of green and how this engages with the race to net zero, but also the role that they play in helping brokers to understand the issue, the importance of sustainable housing and what we as a lender are doing to help them. Brokers can then educate their own clients, showing them the value of advice throughout the lifecycle of their mortgage.” Bryden highlighted Halifax Intermediaries’ Home Energy Saving Tool (HEST), explaining it helped brokers introduce sustainability to a client conversation in →

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GREEN MORTGAGES

“If we reflect on the summer heatwave and challenges it presented, there is an urgent need to adapt housing stock to mitigate climate change. It’s clear we need to act” REBECCA WYNNE an easy, practical way, with simple questions about green home improvements, the answers for which could provide an estimated EPC rating of a client’s property and predict likely CO2 emissions, as well as the indicative costs of improvements, all wrapped up in a personalised action plan. “If we reflect on the summer heatwave and challenges it presented, there is an urgent need to adapt housing stock to mitigate climate change. It’s clear we need to act,” urged Rebecca Wynne from Lloyds Banking Group, which is committed to creating a more sustainable and inclusive future for people and businesses. “There are a number of green mortgages in the market that incentivise those with greener homes. The key challenge is reducing emissions within existing housing stock.” Wynne further explained that the pace of decarbonisation would be affected by homeowners feeling unable to make energy-efficiency improvements to their properties due to growing inflation and interest rates. Homeowners may not consider it a priority because they might not be able to justify the costs, particularly when those could be upwards of £16,000. On the other hand, the rising cost of living might motivate some who were looking for cheaper energy-running costs. “Looking at the demand for heat pumps alone, research suggests it’s increased by around 20 per cent, so people are clearly willing to act to get ahead of any further increases to gas prices,” Wynne pointed out. “There’s also uncertainty in terms of government policy to upgrade as many homes as possible to EPC band C by 2035. Recently, the government has been focused on addressing inflation challenges. So I think the challenge for lenders is that without a clear plan in sight, the speed of innovation for more green finance options is being hindered. How do we understand the energy efficiency of a home during

the application journey, collate data, and automate it early in the application process to prevent potential delays?” For Nicholas Mendes, representing John Charcol, an independent mortgage broker, knowledge is power. “I think one of the key things when it comes to sustainability is about brokers really educating themselves,” he suggested. “There’s a lot of ignorance – advisors not really selecting the right products when it comes to new builds and green mortgages or going with something they already know, out of fear more than anything else, that they [may] do something wrong. As brokers, do we do enough to educate the client in terms of home improvements and the ways in which you can improve the home? Probably not. We don’t really challenge EPCs as much as we should. If I take my personal circumstances, we bought our home in 2014, we’ve done work on it, and the likelihood is the EPC has probably improved. I have not actually done a new EPC – it lasts 10 years, so presumably I might have been able to benefit from a green mortgage. I think there’s more that we can do to really encourage clients to have those conversations and, actually, if you’re doing any work, just factor in the good things that could come off the back of it and potentially how it would affect your mortgage.” Discussions around sustainability have progressed significantly in the mortgage industry, believed Erika Moreira Baker, from Barclays UK, which is aiming to become a net-zero bank by 2050. But she noted that customers still needed to be engaged. “We’re spending a lot of time and effort understanding our book and our emissions,” she explained. “We’re doing a lot of work to understand customer behaviour and what it is that drives them to retrofit. The key challenges are around the initial investment, the upfront cost. Energy prices have gone up, and the key driver for customers, especially with the rising cost-of-living, has been to reduce their bills. The cost of materials and the cost of labour have gone up significantly as well. We’ve heard customers talk about environmental considerations and social pressure, but they also say, for example, that they don’t need to replace their boiler, it’s still working well. There’s an element of a lack of urgency and certainly a lack of knowledge as well. There’s a sense that there’s a lot of risk around it, and customers are afraid that the technology might not work for their house.

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ROUND TABLE

GREEN MORTGAGES We’ve found that they find it difficult to identify real, tangible short-term benefits to retrofitting work, and that is a key barrier that we’re trying to address.” Recent data suggested the UK had a combined capacity of 13.26 GW of solar PV power, enough to power around three million British households. According to the Solar Trade Association, around 900,000 British homes have had solar PV panels installed. Daniel Capstick, from Ecology Building Society, which provides mortgages for self-build projects, drew attention to an increase in the offering of green mortgages. “It’s our mission to combat climate change through our lending activity,” he said. “So, every single mortgage that we approve, there is some positive environmental impact or sustainability impact, and through that all of our products, typically on the residential side, are all designed with that in mind. When you look at what the mortgage industry has to do for the sustainability of properties, it falls into two parts: new and old properties. A lot of the products that we see are aimed at new properties, and they’re still relatively expensive compared to traditional mortgage products. There’s very limited choice in terms of what I would describe as green mortgages, which really target the renovation or retrofit market. If we are to hit these net-zero targets that we want to hit in 2050, then that really is where the focus has to be. So it would be great to see more mortgage propositions, pricing, and incentives for consumers, to target that market and really incentivise them to do some of the work that they should be doing to improve the renovation and energy efficiency of their dwellings. That can be many things – insulation, glazing, heating types, things like that.” Grant Hendry, from Foundation Home Loans, an intermediary-only lender, believes that brokers could play an important role in supporting lenders and informing buy-to-let landlords about what they need to do to be energy efficient. “EPCs need to be part of a broker’s fact-finding process,” Hendry maintained. “They should be asking, ‘When did you have your EPC done, what was the score on there? Get these improvements done before we do the mortgage because that’s going to get you a better rate, it’s going to make sure your property is green.’ An EPC makes a property more marketable from a landlord’s point of view, as they’re able to charge more in rent when somebody’s bills are less. We’re

trying to find ways in which we can educate those landlords and our customers. Roughly about 40 per cent of our book is in band D. When you look at energy efficiency improvements, it’s not so much about how much it’s going to cost and it’s not all about solar panels and air source heat pumps. It’s about doing simple things, such as replacing light bulbs with LED, it’s about doing loft insulation, to improve your EPC band.” GETTING BROKERS INVOLVED The engagement of brokers in sustainability had been mixed, reflected Bryden. Some had been early adopters, and there was an appetite to increase their knowledge, but others still had some way to go in getting fully onboard. “There is a real opportunity for brokers to reinforce the value of great mortgage advice and bolster this by demonstrating their understanding of the sustainable homes challenge and what it means for homeowners,” she said. “That is where we, as lenders, have a key role in increasing this engagement. We have introduced our Green Living Hubs, to which clients can be signposted to help them understand basics, such as what an EPC is, its value, and we offer free virtual green events on renewables, such as how solar panels work and demystifying heat pumps, alongside considerations of whether these could be the right solution for homeowners considering their options. As a bank we do not give advice on specifics of what improvements are suitable, as we leave this to the experts, but we have teamed up with Energy Saving Trust, an independent organisation, to provide an impartial view, helping customers get the answers they need and to share the factors to consider when hiring tradespeople.” While there are evidently initiatives in place to →

“As brokers, do we do enough to educate the client in terms of home improvements and the ways in which you can improve the home? Probably not” NICHOLAS MENDES

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ROUND TABLE

GREEN MORTGAGE drive change in the mortgage industry, Mendes recognised that some mortgage advisors may be averse to change. “I find that a lot of brokers are essentially creatures of habit,” he noted. “So anything that’s outside of the box they probably try to avoid, and it takes time for new policies to come into play. I think there’s more that can be done from lenders as well to really encourage that conversation. For example, if a broker has put a deal on a particular property and that lender can see that its EPC is a C or above, highlighting that qualifies [it] for one of our other products, which might be more costeffective.” MAKING EPC CHANGES It was not always necessary to have an EPC when remortgaging, Barclays’ Moreira Baker pointed out, but it was worth asking your customer for one, so that you could identify what product was best for them. Likewise, a client buying a property to let with a low EPC rating should be informed of upcoming legislation covering the letting of properties. “We’re keen to work with brokers, to understand what help they need from us and how can we help them have better-value, meaningful conversations with clients – not just ticking the box, but adding value,” she reasoned, explaining that the conversation needed to be broadened to embrace wider environmental concerns. “We need to consider that with climate change, we are expected to see more adverse climate events. So I also think there’s a role for lenders and brokers to think about how we can engage our customers on other climate risks, such as floods, subsidence, and coastal erosion.” Hendry referred to recent political uncertainty in the UK, which might, for example, deter someone

“We’re keen to work with brokers, to understand what help they need from us and how can we help them have bettervalue, meaningful conversations with clients – not just ticking the box, but adding value” ERIKA MOREIRA BAKER

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from installing solar panels while they hold out to see what changes there might be to government grants. He believed, though, that the industry was not doing enough to help customers increase properties to an EPC C band. “That’s where we need to up our game and not just pick the low-hanging fruit and the easy option,” Hendry told the panel. “If I’ve got a rate at five per cent and another lender’s got a rate at 4.5 per cent, but it’s not a green mortgage, a customer is not going to take the green mortgage. So we need to evolve the product and make it more attractive for a customer to understand why they’re doing it, and give the brokers the tools and the education to be more engaged in that space.” He continued, “I think my frustration is that I’m having the same conversations a year or two years on from when we first launched, and we haven’t evolved further. As a lender, we really want to get it sorted to support more landlords. When a case comes in, submitted as a standard product, we look at the EPC of the property, to use that as a window of opportunity to say, ‘Have you looked at a green mortgage? Because this property is a band C,’ which on a buy-to-let may allow the customer to borrow another £10,000 to £20,000.” Brokers have a duty of care to their customers to find the best deals for them, whatever their circumstances, emphasised Capstick, but there needed to be more robust, green lending products. “They are probably doing their best for their consumers based on what they require, but there’s a distinct lack of green mortgages at competitive terms to signpost to consumers,” he observed. “We reward customers with lower interest rates based on the standards they achieve. That rate will lower, depending on the environmental outcome that they achieve, and that discount lasts for the life of the mortgage, incentivising the consumer to do more work. So we have a clear product that targets that retrofit agenda to improve the EPC, whether it’s all in one go or incrementally. And we’re looking to develop more enhancements to that. We’ve been calling for a national retrofit strategy to kickstart a retrofit revolution, to make warm homes affordable. We’d like to see the government apply a lot more activity to support green buildings activities – so, grants, stamp duty reforms, tighter building regulation, improving the retrofit supply chain of contractors. In a world where some are advocating low-carbon heating, like heat pumps, which use electric, gas

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ROUND TABLE

GREEN MORTGAGES still remains significantly cheaper than electric. So we need the right level of investment and fiscal incentives to address the issue of the mismatch between gas and electric cost per kilowatt hour.” He added, “From our own viewpoint, we’ve seen a significant increase in broker business, but we are inherently different, so everything that we do has a sustainability and energy-efficiency aspect to it. Brokers control a lot of the mortgage market, so they’ve got a massive role to play, in conjunction with lenders.” CREATING DEMAND There was demand from borrowers for funding for retrofit improvements, said Bryden, but she acknowledged a challenge in the availability and quality of data to verify completed improvements. “For us to scale, to offer incentives attached to retrofit, we need to ensure and validate that the money borrowed is spent on reducing the carbon footprint of a home,” she conveyed. “On top of this we also need to consider the implications from a regulatory reporting requirement [perspective] in relation to securitisations of mortgage assets.” Agreeing that this was challenging, Wynne said, “We’ve aligned very closely to government grants, so they can work in tandem. We’re seeing more interest in or claims for solar panels and low-carbon heating as well as insulation measures. We definitely see brokers are our key enablers to be able to scale that. While it’s still early days, we do need to consider what data is available, how it can help us understand the current and potential energy efficiency of a home, how we can scale it – and, more importantly, how we can automate it into the journey. It’s about enabling the capability to then develop and innovate. Changes are coming.” Considering what political and economic factors might be driving lenders to act more sustainably, Wynne added, “I think, from an economic perspective, with the immediate challenges, there is growing concern that more households will fall into fuel poverty or fuel stress and therefore will be choosing between putting food on plates vs turning the heating on, so driving customer awareness of the cost savings of an energy-efficient home is the right thing. In terms of future policies, there is a disparity among the devolved governments and their timelines, so there are still those gaps around policy and how the owner-occupied are supported on that energy-saving transition that will

drive innovation in the market.” Mendes, meanwhile, identified a change in customers’ approaches. “People are being more conscious about how they save and invest, and likewise how they borrow their money,” he told the panel. “So some of the conversations that we’re starting to see filter through are clients actually being really an advocate in terms of who they want to go with and who they don’t. I think it’s really important for lenders who are looking at coming out with green products and are looking at supporting initiatives to be quite vocal about what they’re doing. It would be great to see a fixed rate that reduces over time when the EPC has improved. I think that would be a really good incentive, especially for clients taking long-term fixed rates and actually getting the benefit from it.” Bringing the discussion to a close, Bryden offered this final, thought-provoking summary: “One of the key pain points is a lack of understanding around sustainability and green. Clients don’t know what

“EPCs need to be part of a broker’s fact-finding process. They should be asking, ‘When did you have your EPC done, what was the score on there? Get these improvements done before we do the mortgage’” GRANT HENDRY improvements they can make, how they can finance them, and who to turn to to get the work done. I don’t think this is just linked to the mortgage sector; it’s a much broader housing challenge, and something that lenders, brokers, and tradespeople will need to work together on. It isn’t something that one or the other is going to fix themselves.” She concluded, “Now, more than ever, we need to come together and ensure that, as a sector, the intermediary market is really leading the charge in the green space, and that is why it is incumbent on lenders such as ourselves to begin that education programme and work together to educate consumers on its importance.”

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INTERVIEW

GREEN HOMES

Pushing green initiatives Buyers are now acutely aware of eco-friendly improvements

he cost-of-living crisis has brought to light, for many, the importance of the government’s green agenda and its push to net zero. In June 2019, parliament passed legislation requiring the government to reduce the UK’s net emissions of greenhouse gases by 100 per cent relative to 1990 levels by 2050. While a cap on energy bills has now been introduced by former Prime Minister Liz Truss, prices were expected to rise once more in October. Roger Evans, director of home finance distribution at Gatehouse Bank, explained that it is not just the government that is pushing these initiatives. “We are all becoming much more aware of our impact on the environment, so the move toward energy-efficient housing is here to stay,” he said. Evans added that when looking around homes, buyers are now acutely aware of any eco-friendly improvements that need to be made and know the rough costs of these changes. At a time when house prices and inflation are high, and the cost-of-living is rising, he said buyers will be looking to save on any purchases that require this additional expenditure. “The mortgage industry has responded to the government’s green goals by offering green products and incentives; however, there is still a lack of clarity surrounding the upcoming regulations and what exactly the measures mean for buyers and sellers,” Evans added. While the industry waits for more government guidance, Evans said he expects this trend to continue. HOW TO ‘GREEN’ YOUR HOME

Looking at the cost-effective ways homeowners could improve the Energy Performance Certificate (EPC) rating on their homes, Evans pointed toward

GREEN MORTGAGES NOVEMBER 2022

simple changes such as replacing existing light bulbs with LED bulbs, which he noted could reduce carbon emissions by 40kg a year. “Fitting a hot water cylinder with an insulating jacket could save around £35 a year in heating costs, and loft insulation can also make a great difference to EPC ratings by minimising heat loss and keeping the home warmer for longer,” he added. Evans outlined that energy efficiency is now a key factor to consider when buying a home, and these lower costs could make the property more attractive to new buyers, especially as energy bills continue to soar. Lyn Webb (pictured), director of Mortgage Saving Experts, explained that the recent energy crisis is pushing millions of people into fuel poverty, and she believes it is only set to get worse. “People are worried about rising energy bills – I think you will find many homeowners making the decision not to put the heating on until really necessary, and then when they do to only have it on for an hour,” she said. Webb believes some may have to make the choice between heat and food, and added that in this country nowadays energy should not be a luxury. According to Webb, the rise in energy bills is also stopping people from buying larger properties or increasing the size of their mortgages due to ever-inflating bills. “I feel that people will struggle to pay their bills, and not just those on benefits or the elderly – I think middle-class workers will feel the effect, too, and difficult decisions in households will have to be made,” Webb said. Everyone is feeling the pinch, and for many, plans to move have been put

Lynette Webb

Webb believes some may have to make the choice between heat and food, and added that in this country nowadays energy should not be a luxury on hold. Webb explained that people are more interested at present in fixing their payments for some stability over the next few years. However, she did acknowledge that Truss’s announcement of a limit on UK energy bills, with a cap at an average £2,500 a year, is a positive start. “I think everyone will be very cautious now; people are telling us they may not move as planned, or a few are moving back to parents’ to ride out the storm and help families with a combined salary pay the bills,” she concluded. www.mortgageintroducer.com

INTERVIEW

GREEN HOMES

How do higher EPC ratings affect home sales? Green homes are on the minds of many given the economic climate

he Rightmove Green Homes report found that sellers who have improved their EPC rating are pocketing as much as one-sixth more when selling their homes. Green homes are very much on buyers’ and homeowners’ minds as the cost-of-living crisis continues to affect the country, with the impact of having a property with a higher Energy Performance Certificate (EPC) rating on an individual’s energy bills adding more weight to the push. “The report has also suggested that there is a correlation between EPC rating and value, but we need to be mindful that there are other factors that are affecting the value of properties as well,” said Trudy Woolf, sustainability director at Legal & General Surveying Services. Woolf explained that it may be more likely that property values are being driven more by the current market, with pent-up demand after the pandemic and a lack of housing stock. That may be about to change, however. “Interestingly, we are hearing anecdotally that the heat is coming out of the market,” Woolf said. She noted that properties are taking a little bit longer to sell, and as the cost-of-living crisis continues to bite, she believes the market may see a further cooling in the future. “However, EPC ratings may have more of an impact on value in the coming year. With the cost-of-living crisis, combined with consumer sentiment around the energy performance of homes, people are definitely becoming more mindful of EPC ratings when looking to purchase a property,” she said-

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TAKING ACTION

With the increased emphasis on EPC ratings, retrofitting is becoming increasingly popular as people look to boost the resell value of their homes. The UK government is also seeking to reach net zero by 2050 – so the importance of improving the EPC rating of one’s home is only likely to increase. With the government pushing green initiatives, Woolf is expecting this trend to continue in the future. “The government recently announced a new website providing homeowners with recommendations that could help save them hundreds of pounds a year on bills,” she said. The website provides homeowners with a home energy MOT and will offer guidance on ways to improve the energy performance of their homes by upgrading things like loft and wall insulation, as well as double glazing. Woolf said it was a step in the right direction; however, she noted that a number of the recommendations will be out of reach financially for homeowners in the current economic climate. HOW TO MAKE IMPROVEMENTS

Ultimately, she said, there needs to be more advice for consumers on how they can improve their EPC rating through retrofitting in a cost-effective way. “Any government initiative will need to account for the rising cost of living and how any changes made will affect homeowners’ finances,” Woolf added. Looking to what cost-effective methods sellers could use to improve their EPC ratings when they intend to sell, Woolf outlined that there are

a number of options consumers can choose, depending on what their current EPC rating is. “For example, a home with an E rating may need to do more work than one with a D rating to reach the required C rating,” she said. Cost-effective methods could include fitting new double glazing and upgrading or replacing a boiler with a new, energy-efficient model. Woolf explained that these methods would require a small investment to bring the EPC rating up and might be more cost-effective than fitting PV panels or installing ground-based heat pumps, for example. “However,” she concluded, “it is important for homeowners to ensure they find reputable companies with the correct accreditation and insurance in place to carry out the work.” NOVEMBER 2022 GREEN MORTGAGES

STATISTICS

GREEN MORTGAGES

KEY FACTS AND FIGURES 68%

Homes with an EPC rating of C could achieve an additional 16% in value compared with properties with an F rating Source: Rightmove

of UK homeowners plan to make green home improvements in the next decade

47%

of landlords say they would not buy a property with an EPC rating below a C in the future Source: Rightmove

Source: NatWest

54%

of limited company landlords know about green mortgages compared to 25% of individual landlords Source: Landbay

Properties listed with an EPC rating of B – the second highest score – were sold in an average of 30 days Source: Rightmove

Around half of homeowners believe the rise in the cost of living has made them more likely to implement energy saving measures over the next 12 months, though 23% say they are less likely to do so

79%

of landlords surveyed know about changes in EPC legislation Source: Landbay

Source: NatWest

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Articles inside

Round table: A greener future for mortgages

Craig Calder

Brokers are key messengers for Halifax’s green good news

The impact of EPC ratings on home sales

Promoting green initiatives