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Target the least energy efficient houses to ensure no one is left behind

In a recent speech, David Geale, Director of Retail Banking, FCA, raised the risk of creating potential mortgage prisoners from EPC rules. The BSA firmly believes that the Government should be targeting the least efficient properties and encouraging lenders to lend to increase the energy efficiency of leaky properties to ensure that no one is left behind. 

The FCA’s view of green mortgages was outlined in a recent speech by David Geale, Director of Retail Banking at the FCA. David highlighted the growing role green mortgages have in decarbonising the UK’s housing stock by helping borrowers to improve the energy efficiency of their homes. He also acknowledged that by incentivising lenders to ‘green’ their mortgage books, there is an inherent risk of making it more difficult, or expensive, for borrowers to obtain a mortgage for properties with lower energy efficiency. This is counterintuitive to the goal of decarbonising the UK’s housing stock and is something the BSA has actively campaigned against due to the potential for it to disrupt the market. Our view is that it is more important that lenders play a role in greening society by lending to those looking to improve energy leaky homes, than on solely greening their own balance sheets.

The biggest benefit to both energy bills and carbon emissions is to target those properties that are leakiest. This is where it is vital that Government gets its policy right, it needs to avoid blanket targets that do not consider unintended outcomes. If Government policy is for lenders to increase the average EPC rating of their mortgage books, it could lead to a two tier market, effectively penalising lenders for lending to energy inefficient homes. This was proposed by BEIS in its consultation in 2020 ‘Improving Energy Performance through Lenders’. The Government has recently confirmed that it will respond to that consultation by the end of 2023 and we look forward to this response.

The BSA is keen to see the provision of mortgages to make people’s homes more comfortable, energy efficient and cheaper to run, grow further in the coming years. There also needs to be a just transition to net zero with nobody left behind. This includes the majority of homes that are rated below EPC ‘C’. The take up of Green Mortgages has been fairly limited, predominately going to homes that are already energy efficient (many new homes).

Consumer take-up, and therefore innovation needs to improve and many consumers cannot afford to carry out improvements in the current economic circumstances, despite their minds being acutely focused on energy costs. Even those that can pay seem reluctant to proceed absent of any Government incentive. If we are to make a real impact in this area, we need the Government to set out its long-term plans on the action and support it will provide homeowners. Only then can we all really work together to provide consumers with the confidence and tools to take much-needed action.

In our sector, we believe that Government should be targeting the least efficient properties and encouraging lenders via an improvement metric to lend to increase the energy efficiency of leaky properties will ensure that no one is left behind.