Paul Broadhead, Head of Mortgage & Housing Policy at the BSA, gives his thoughts on today's housing and mortgage markets.
First published in Mortgage Finance Gazette.
It’s impossible to think about housing without thinking about the Ukrainian families and communities who have been forced to flee their homes in search of safety from the war. Lenders have warmly welcomed the Homes for Ukraine scheme as a way of supporting these families. We’re working closely with Government to ensure it’s implemented as quickly and simply as possible for every UK homeowner who wishes to get involved, irrespective of the tenure of their property. For example, it’s important that homeowners are not excluded from helping refugees because they’re buying their property through a shared-ownership or Help to Buy scheme, so ironing out the detail, quickly, is currently a priority.
Closer to home and the invasion of Ukraine is also directly impacting homeowners as sanctions continue to lead to soaring fuel prices, which come on top of increases in the cost of living. It’s therefore not surprising that our research at the beginning of March showed around half of consumers are looking to reduce their energy use, which may lead some homeowners to consider what improvements they can make to their property to make it more energy efficient.
And that’s a minefield.
There’s clearly an appetite for having an energy efficient home. In September 2021, as part of our Property Tracker Report, we found almost three quarters of respondents said the energy efficiency rating of a property was important when looking to buy a new home – good news as around 15% of the UK’s carbon emissions are from our homes. However, it also showed a low level of action being taken – just one in 10 had upgraded their central heating system in the previous year.
The biggest barriers for homeowners making energy efficient improvements to their property was meeting the initial upfront costs (50%), taking too long to recover the cost (46%), and being unsure about how much money would be saved as a result of the changes (40%).
If we are to galvanise the current consumer appetite for reducing energy use and retrofitting their homes and turn it into action, we need a co-ordinated approach across all the stakeholders in the housing market. The Green Finance Institute (GFI) has already published a lender’s handbook on green home retrofit and technologies. We now need similar information available to educate consumers – they need to know for their specific home what changes will have the biggest impact, how much it's likely to cost and the expected ‘pay back’ period. Without this it’s unlikely that we will see the required change in action.
Funding is also important. Whilst the Chancellor’s Spring Statement announcement of zero vat on energy saving materials is a step in the right direction, Government now needs to announce any further policies or incentives that will be available to homeowners, and when they can expect to access them. If no additional incentives are to be offered, Government should say this, as it’s likely that many people are sitting on their hands waiting on the possibility of future incentives.
There is also a key role for brokers and lenders, advising borrowers on how to access funding to carry out energy efficient home improvements, whether that’s when they’re buying a new home, re-mortgaging or looking at a further advance. This may be particularly relevant to those in the buy-to-let market who may need to make improvements to meet the minimum energy efficiency rating required for rental properties. Although there’s an expectation that that the growth in property transaction and prices will flatten this year, I expect the re-mortgage market will remain buoyant. This will provide opportunities for mortgage advisors to discuss decarbonisation and home improvements with their customers as part of their affordability conversations.
Whilst reducing energy use will help some deal with the rising cost of living, there are a number of families who will be experiencing money worries. Although recent lending statistics are not showing this feeding into mortgage arrears at the moment, this could change as the higher costs start to bite.
For those homeowners feeling the squeeze, speaking to their lender before they miss a payment is always the best course of action. Our business is to help people to have a place to call home, so alongside providing finance to buy a home, lenders have many tools to provide support in difficult times, and with inflation likely to hit double figures this year I expect many will be needed in the coming months.