Cherry Mortgage and Finance discuss what green mortgages mean for the sector
In 2019, the UK became the first G7 country to set itself the ambitious goal of net-zero greenhouse gas emissions by 2050. As part of this wider commitment, the government announced a Green Finance Strategy, confirming in July 2019 that a £5 million fund will be made available to help the financial sector develop green home finance products such as green mortgages.
The Energy Efficient Mortgages Action Plan [EeMAP] and the Green Home Finance Innovation Fund [GHFIF] aim to create a green mortgage, which will provide customers with discounted mortgage rates once they have upgraded the energy efficiency of their home or purchased an energy efficient property.
Currently homes are responsible for 15 per cent of the UK’s carbon emissions.
The report from the Department for Business, Energy & Industrial Strategy announcing the scheme states that there are 17 million homes in the UK with an Energy Performance Certificate [EPC] rating below band C. As the UK moves toward a net zero economy by 2050, the Green Finance Strategy and green mortgage incentive is intended to entice individuals to improve the energy efficiency of their homes, bringing down this number and tackling domestic emissions, which will be key for the UK to hit its net-zero goal.
Minister the Rt Hon Chris Skidmore said when the scheme was announced: “To fulfil our world-leading commitment to reach net zero emissions by 2050, we need an overhaul of our housing stock to tackle the disproportionate amount of carbon emissions from buildings.
"By rolling out more green mortgages and reducing the costs of retrofitting older homes we’re encouraging homeowners to improve the efficiency of their homes and save money on their energy bills, helping to ensure everyone has access to a warm and comfortable home."
However, one business leader has his doubts about the Green Mortgage Fund and whether it will have a tangible impact on mortgage lending or consumer behaviour, highlighting a number of notable shortcomings in the green mortgage plan to date.
Matthew Fleming-Duffy(pictured, top right) is the director of specialist, independent mortgage broker Cherry Mortgage & Finance, based in Bournemouth. Speaking to The Parliamentary Review about his thoughts, Fleming-Duffy said: “Improving the energy efficiency of buildings is seen as an effective way of reducing carbon emissions and tackling climate change. Any step taken to encourage homeowners to make their homes more energy efficient must be seen as a good step.
“However I believe the £5 million ‘green mortgage fund’ – announced as part of the Green Finance Strategy - is not going to have any significant impact on mortgage lending or consumer behaviour.”
Indeed, progress on the creation of green mortgage products has been slow and there has been little take up by British mortgage lenders.
Barclays is the only major bank to offer any form of green mortgage. However, these are restricted to newly built properties on a list of the bank's approved developers. A universal definition of a “green mortgage” is also lacking.
Cherry Mortgage & Finance offers its own version of a “green mortgage”, with a pledge to plans one tree in the UK and offset a tonne of CO2 through the Portel-Pará Reduced Deforestation project in the Amazon Rainforest.
In the firm's day-to-day activities, Fleming-Duffy has explores how best to help clients improve the energy efficiency of their homes for some time, entering into partnership with Ridgewater Energy, a local consultancy in the county of Dorset that offers borrowers advice on the most cost-effective changes to make in their own properties, the grants and incentives on offer and how to find trusted installers.
The most superior offering that Fleming-Duffy feels is available to date is that provided by Ecology Building Society. Ecology offers a renovation mortgage whereby they offer a 0.25 per cent reduction from their Standard Variable Rate for every grade improvement in a property’s EPC rating, which he feels is the most superior offering to date.
Yet, despite praising Ecology’s model, Fleming-Duffy believes that its scalability is another issue.
Fleming-Duffy said: “Using the Ecology’s product model and considering the average mortgage balance is £120,000, that would represent approximately £5 billion in annual mortgage discounts [if everyone took up the scheme and improved their home by one EPC band.]
“The model being used by the Ecology is fantastic and mirrors the model being promoted under the EU's Energy efficient Mortgage Action Plan [EeMAP,] however I am not convinced that it is scalable”.
In short, lenders are unable to get a sustainable solution off the ground alone, and in Fleming-Duffy's view, it may be very challenging to develop one without government help.
He said: “Developing a sustainable, mass-market solution may prove to be very difficult without significant funding from the Government, considering the loss in revenue for banks and building societies.
“My issue is not with this type of scheme, just that it may not be financially viable in the long term."
Alongside this, Fleming-Duffy believes that the lack of clarity for consumers who are looking to improve their homes is another problem.
He explained: “In addition to this, many consumers would not know whether solar PV, ground source heat pumps or Biomass secondary heating are appropriate solutions for their property. Where would you start your research? Who do you trust?”
However, Fleming-Duffy does suggest that there may be solution that has not yet been considered, entailing the introduction of a 'Green Network' to help advise homeowners in a similar vein to the Help-to-Buy scheme.
“In the same way that Help-to-Buy captured the nation’s psyche and has been an outstanding success in providing consumers with a central hub for information on how the Government can assist with buying a home, I believe that a ‘Green Network’ could also be established whereby a regional network of approved energy assessors, installers and manufacturers of sustainable energy solutions, utility companies, financial & legal experts are identified as able to provide relevant advice to homeowners. This could be run either as part of the Help-to-Buy network or as a standalone programme.”
Without doubt, the government must begin to provide clearer guidance and information to consumers who are looking to make energy efficiency improvements to their home, but it also has a duty to the financial industry to help get a tangible green mortgage solution up and running.