Sparked by the climate emergency but spurred on by rising energy bills, the government is supporting green finance for energy efficient homes.
A new fund of up to £20m is being made available to lenders to allow them to develop a greater choice of green finance products to help households reduce their energy bills, as well as their carbon emissions.
Green mortgages have already been on the rise for a number of years, which tend to provide favourable rates or other incentives for borrowers investing in properties with higher energy efficiency ratings, or energy performance certificates (EPCs).
Such options are available to property investors as well as homeowners, depending on the product. They can make the prospect of investing in a new-build or a highly energy efficient home even more enticing, particularly as mortgage rates have risen in recent months.
Green finance to raise the bar
For property investors, newly built properties have a number of benefits, including being more future-proof – particularly taking into account government proposals to increase the minimum EPC ratings of properties in the private rented sector to D or even C in the coming years.
Green finance products which can save money on monthly mortgage costs could therefore be a welcome bonus for such buyers, while homeowners would also benefit from reduced mortgage outgoings alongside cheaper bills.
Minister for Business, Energy and Corporate Responsibility, Lord Callanan, said: “Driving up the energy efficiency of homes won’t only reduce our impact on the climate, but will also help houses stay warmer for longer.
“Green finance products will allow households with greater means to spread costs over time, empowering them to be able to invest in their properties, improving their energy efficiency and resale value.
“Today’s funding will give more companies in the financial sector the opportunity to create and offer these products, and in so doing help households reap the benefits both in the investment to their properties, and in the savings they can make on their energy bills.”
How important is energy efficiency?
Earlier this year, a study by Savills using using EPC and HM Land Registry data found that new-build owners will save a projected £4,900 in energy bills over the next five years, compared with the average older home. This is something many renting tenants, too, will be highly aware of.
Furthermore, properties with an EPC rating of C have been found to sell for 5% more than less energy-efficient ones, and this disparity could be set to increase as the cost of living crisis alongside environmental awareness continue to impact people’s choices.
The government has a broad aim of ensuring that as many homes in England as possible meet EPC band C by 2035, although there is currently no legal minimum for owner-occupied properties. In the private rented sector, the minimum EPC rating is currently E.
According to the Committee on Climate Change, energy use in homes currently accounts for around 14% of UK greenhouse gases, so the green finance announcement is just one of many factors that will aim to boost the country’s housing stock quality and lower emissions.
Professional membership body Propertymark is calling for the government to ensure that any new rules it puts in place are “realistic and achievable”.
It says: “Without providing landlords and homeowners with incentives and access to sustained funding, it is unlikely that energy efficiency targets for the private rented sector and a reduction in emissions across the property sector will be met.
“Decision makers across the UK must move away from a one-size fits all policy and develop energy efficiency proposals and products based on the archetype of a property rather than its tenure.”
Support for lenders to increase their green finance offerings is certainly a step in the right direction, and many investors will hopefully be able to benefit from these products.
