FCA: We mustn’t lock out inefficient properties from the market
The Financial Conduct Authority has warned mortgage lenders not to adopt a ‘blinkered approach’ and exclude non-energy efficient properties from the market.
David Geale, director of retail banking at the regulator, spoke at the London Institute of Banking & Finance mortgage conference about the growth and potential of green mortgages.
‘Green mortgages’ work by offering a lower rate for properties with a strong EPC rating, or an incentive for homeowners to upgrade their properties.
He said: “While there is massive opportunity here, there are also several inherent risks. I’ve already mentioned how significant emissions from mortgaged homes are to lenders’ decarbonisation strategies, and those lenders could face a variety of issues if they fail to hit those targets – reputational or otherwise.
“If lenders fail to develop credible plans to meet their stated decarbonisation targets, we are likely to take a very dim view – and it could be perceived by the market as yet another example of greenwashing.
“Lenders adopting a blinkered approach and targeting only to the most efficient properties would have the unintended consequence of making it difficult, or very expensive, to secure a mortgage for properties with lower energy efficiency, even if those properties could be significantly upgraded.
“It would also penalise those homeowners who are not currently able to make those improvements without help, and may become – or already be – vulnerable.”
Some 60% of the UK’s housing stock still has an EPC rating of D or below.
Geale added: “There is also a separate risk that innovation in products and incentives could run ahead of consumer demand.
“Our workshop discussed various ways to mitigate this problem, for instance, making the incentives on offer more readily useful and useable. Many people use every last penny they have to simply buy a home, pay the legal fees, stamp duty, removals, and essential furnishings. It may not be practical or feasible to borrow additional money to fund energy efficiency when they first move in.
“It also takes time to adjust to a new home, and several seasons may be needed before you can decide whether a solar panel on the roof is the best option, a ground source heat pump, or loft insulation.
“And, to help address this issue, we’re now seeing some green mortgages emerging where the incentives are available at any point in the lifetime of a mortgage, meaning lenders can help borrowers decarbonise their home as and when they are ready – rather than only being available at the point of taking out a mortgage, which may be the least practical or affordable time for many.”
Trudy Woolf, sustainability director of Legal & General Surveying Services, said: “It is fantastic to see the FCA reaffirm its commitment to sustainability and green home finance, noting ‘rapid development’ in this area.
“However, brokers and lenders must also prioritise their sustainability efforts if we are to see substantial and long-term gains in decarbonising the UK’s housing stock.
“Despite all the positive discussions within our industry, customer awareness, education, and understanding of green mortgages also remains low, meaning that green mortgages hold huge untapped potential.
“Our industry must plug the education gap if we are to decarbonise the industry and create a better future for all.”