Why You Can No Longer Be in the Red About Going Green
Written on 29 November 2021 by
The world as we know it is starting to change. People, communities, and countries are starting to reflect on how they may be impacting those around them and how that may be affecting the world we live in today.
It’s no longer a choice, we’re all actively participating in this change. The shops we buy our produce, from packaging through to delivery, are focusing on recyclable materials and other ways to reduce their carbon footprint. Pensions and investment funds are also becoming more diverse. They’re now more aware of how they’re investing your money and the possible consequences of investing in certain industries that may impact the environment. This acknowledgement of trying to become greener, has also trickled through into the mortgage market.
How Has the Market Become Greener in Recent Years?
Let’s cast our minds back to early 2020. There were just a small number of green mortgages on the market. To be eligible for a green mortgage you needed to have an Energy Performance Certificate (EPC) rating of an A or B, and the benefit would only be a small, discounted rate off the standard fixed rate and / or a cashback incentive. Unless you had a new build it was a very unlikely you would’ve been eligible for the deal.
Fast forward to today and we’re seeing new deals coming thick and fast, as lenders want to ensure they’re not left behind and that they’re keen to embrace and prepare for the future. Deals are being introduced across both the residential and buy-to-let sectors.
The recent government Net Zero report was a telling insight into how they want lenders to ensure that the homes they lend on are energy efficient, but also to make sure that a larger proportion of their lending factors this into account in the future.
EPC Ratings for Buy-to-Lets
Recent government proposals that are currently under consultation, may mean that new tenancies could be banned on rental properties with an EPC rating of D or below, from 2025. Those with existing tenancies would need to comply by 2028, to be able to let the property out.
The pressure on lenders from the government is growing, so lenders will need to be looking to ensure that the homes they lend on our suitable. With most of the homes in the UK being an E or D rating, landlords will also have to consider any costs to improve potential properties.
If the home has an EPC rating below a D, this will deem the property to not meet letting requirements. No rent means no mortgage and lenders could then value the property at £0 (as we saw with the cladding issues) until this has been remediated.
EPC Ratings for Residential
There are no current discussions regarding residential homeowners needing to make changes to their property, as we have had with buy-to-lets.
The focus seems to be on newbuild homes and setting a standard on how new homes will bring an environmental revolution to home building. With the main focus being tackling climate change, whilst keeping household bills low.
With homes, both new and existing accounting for 20% of emissions, the government have committed to meet the 2050 target of bringing all its greenhouse gas emissions down to net zero by 2050. This target was set in law on 27 June 2019 and is one of the most ambitious targets in the world.
It’ll see polluting fossil fuel heating systems such as gas boilers banned from new homes by 2025 and replaced with the latest generation of clean technology. Using new technologies such as air source heat pumps and the latest generation of solar panels, as well as developments in the fabric of buildings such as wall insulation and heating, will help drive down the cost of keeping homes warm.
To help the industry reach a position to where it can deliver in 2025, the intention is to make new homes more energy efficient and to future-proof them in readiness for low carbon heating systems. It’s expected that the average home will be built to have 75- 80% less carbon emissions than one built to current energy efficiency requirements.
What Does This All Mean for Me?
As landlords look at the costs of improving either one or several properties, depending on their portfolio, it could start becoming a financial burden causing for properties to be sold.
As a homeowner, reviewing your home and your EPC will pay dividends. Having an A, B, or C EPC rating will no longer be the USP, but the expectation. Whether you’re purchasing or remortgaging be prepared, as we could be seeing the best rates for green mortgages in the future.
We could expect to see a range of new innovative ideas from lenders. Stepped discounted fixed rates, depending on the EPC rating, could emerge over the coming periods. Affordability may also be stressed favourably for the client, as being in an energy efficient home would mean lower bills. We could also see a minimum EPC requirement introduced by lenders for certain products.
As we move into a future of unprecedented attention and focus on green mortgages, one thing is for certain 2022 will be the year that we all take notice.
To learn more about green mortgages and find out your options, give us a call on 0330 433 2927 or enquire online today.
Category: Nick Mendes