Although lenders need to provide solutions for property owners to improve the carbon footprint of their homes, Graham Sumsion, lending operations manager at Monmouthshire Building Society (MBS), has warned that this cannot be done responsibly without government support.
The market is currently in a period of testing and experimenting with what products and methods work best for a ‘greener’ approach to property finance.
For MBS, this has included its Valuer Project, where it has partnered with SERO, Rightmove, and the Royal Institution of Chartered Surveyors (RICS) in order to understand how affordability assessments might be modified to include energy efficiency as a factor.
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“What we’ve been looking at from the outset of this project, which we started before the pandemic, was options in terms of building really energy efficient properties, and how lenders could support with the additional costs associated with that,” said Sumsion.
“But what we actually came up with was looking at how we assess affordability.
“If you’re a potential customer and you go and look at an EPC-rated property, and you’ve got a certain income, our model might say you’ll spend extra money on energy versus if you buy one of these new properties, and therefore we can take that into consideration, and might be able to lend a little bit more.”
MBS has also launched a range of mortgages for ‘A’ rated homes, providing a two-year fixed rate of 2.39% at 95% LTV, and a five-year fix at 2.69%, also at 95% LTV, available for both first-time buyers and home movers.
Sumsion explained that the society is in the process of assessing demand for these types of products, and that the market as a whole is facing a transitional period when it comes to green finance.
One of the issues currently facing the market is that, while products incentivising the purchase of highly rated properties – and in particular new-builds – is an important part of the puzzle, the main concern should be updating the country’s existing housing stock.
Sumsion said: “We recognise that new-build properties are important, and obviously there are a lot of homes being built and they need to be built to as energy efficient a standing as possible.
“Hopefully what we’ve done in that space will help. But we are also doing some work on our existing book as well, again working with SERO, who have designed a whole home retrofit assessment that we’re offering some of our members – a free whole home survey.
“This will look at their property in quite a bit of detail and look at how to get on the way to that net carbon zero.”
At the moment, however, lenders face considerable limitations in the amount of support they can offer to borrowers looking to retrofit their homes.
“It’s a really tricky one, because as a lender we will be there to support our members,” Sumsion explained.
“But we have to do it responsibly. So, if we identify with a member that they need to do £20,000 worth of work to get to a place where it’s an energy efficient home, but it’s not appropriate to lend £20,000, we won’t do it.”
Lenders must provide finance responsibly, but a considerable leap needs to be taken in order to implement the kind of change that will have any real effect on the carbon footprint of the UK’s housing stock.
The gap, then, must be filled by government support, but it is as yet unclear what form this might take in order to work best.
Sumsion pointed to the Green Homes Grant implemented in England, but noted that there needs to be a combined effort across the UK.
He also warned, as others have also done recently, that the EPCs themselves are not necessarily a reliable form of measurement.
However, Sumsion took a pragmatic approach, in that while this method is flawed, the market must balance the need for better and more in-depth science, with providing measurements and frameworks that the public can understand and get behind.
He said: “I think you have to be careful that it doesn’t become over-complicated and something which is only understandable to the very few.
“We’re open to it being something different, as long as it’s easily understood to the majority.”