Greener finance is growing

BSA Chief Executive, Robin Fieth, shares his thoughts on the latest topics on the agenda of the lending community: Green finance and mortgage prisoners.

Originally published in Mortgage Finance Gazette magazine

On 27 June the Climate Change Act 2008 was amended to make the UK the first G7 country to legislate for net zero carbon emissions by 2050. The Labour Party has mooted an even more challenging timeline – to reach net zero by 2030.

Green_house_2.jpgThe ambitions are certainly high but to turn them into reality the UK needs a comprehensive strategy to up the green credentials of our housing stock. Given the number of beautiful, old but draughty homes around the country, it is unsurprising that 15% of the UK’s carbon emissions are produced from our homes.

Government clearly sees an important role for lenders. The Green Finance Strategy talks about setting requirements for lenders to help households improve the energy performance of homes they lend to as one potential policy option. There is also further talk about ‘green mortgages’, with a £5 million competition fund set up. The BSA understands this 'prize fund' will be shared among lenders that can demonstrate innovative ways of incentivising borrowers to improve the energy efficiency of their home. There is also a £10 million fund for firms to design ways of cutting the cost of retrofit, potentially using Modern Methods of Construction (MMC).

Much of this work will be supported by the Green Finance Institute, headed by Dr Rhian-Mari Thomas, the former Global Head of Green Banking at Barclays. There is a lot to be getting on with, but as I said in my speech at this year's BSA conference, we see a role for building societies to lead the way in the green space and have received a good response from the sector to the latest initiatives.

Building societies typically make twenty-five to forty-year lending decisions: with the current pace of climate change, ‘green’ could be a material factor in risk assessments on at least some of those. This has been a key focus of the PRA's work, requiring lenders to nominate a Senior Manager to manage climate change risks by October.

Inevitably this will move from a compliance exercise to one of wider business transformation, as Boards look to capture the opportunities presented by green finance.

I explored green and sustainable finance in the summer edition of Society Matters magazine, highlighting its increasing significance in our sector. Evidently it is an area primed to spring firmly onto the radar of consumers in the coming months and years. Let’s just hope the wider financial services industry is ready.

 Mortgage prisoners: time to speed up progress

 Another growing concern is the FCA’s proposed changes to responsible lending rules and guidance, leaving swathes of consumers - now dubbed ‘mortgage prisoners’ - stranded on higher-rate mortgages

The FCA’s most recent consultation highlighted that around 500,000 consumers in closed books should be contacted, explaining their eligibility under the new affordability proposals.  The introduction of Mortgage Market Review (MMR) and the Mortgage Credit Directive (MCD) has made it difficult for these consumers to switch to lower-rate products, leaving some struggling to meet repayments.

mortgage-prisoner-house-man.jpgAlthough both MMR and MCD were rightly introduced to help better regulate the wider mortgage market, mortgage prisoners certainly received the raw end of the deal. It is positive to see the FCA addressing the regulatory barriers that restrict mortgage prisoners from re-mortgaging to more affordable rates. However, the FCA have estimated as little as 2000 mortgage prisoners may be helped by this intervention.

This time last year, lenders signed up to a voluntary agreement that provides eligible borrowers with the opportunity to switch to a cheaper mortgage with their existing lenders. This provided a route to alleviate some of the problem, but take-up from consumers so far has not been great.  As it stands, there are still many consumers with unregulated entities who have no way out of their situation.

Part of the challenge with helping mortgage prisoners is that current data on the mortgages, borrowers or the interest rates being charged in these books is sparse and generic. Moving forward, it is crucial that the industry can profile mortgage prisoners’ circumstances to properly map out a solution. The BSA has requested more granular data from the FCA. The provision of this data, profiling the mortgages held in these closed mortgage books, will help lenders determine whether they want to adopt the modified affordability approach. Even with this additional information some lenders may decide that adopting this modified approach is beyond their credit risk appetite, and inevitably there will be individual cases that are effectively not re-mortgageable on any sensible commercial terms. Adoption of these rules is a commercial decision for the mortgage lender.

Positively, the FCA has set up an implementation group of lenders to take forward this work – BSA members will form part of this group and the first meeting will take place soon. Mortgage prisoners need help urgently and we call on the Government to extend FCA powers to ensure all customers in closed books have full protection.

 

You may also be interested in...

BSA Card
  • BSA.PressRelease Press Release
  • Mortgages & Housing

Building society sector grows as two banks are mutualised

Building societies and mutual-owned banks remain the driving force in the mortgage market whilst continuing to offer competitive savings rates.

BSA Card
  • BSA.PressRelease Press Release
  • Mortgages & Housing

Disappointment for first-time buyers as Bank Rate remains at 4.25%

BSA comments on the MPC's decision to hold the Bank Rate at 4.25%

BSA Card
  • BSA.Event Event
  • Financial Crime

Financial crime prevention seminar

This full-day event in Leeds provides BSA members with expert briefings on current key risk areas in financial crime to help them review and focus the...

BSA Card
  • BSA.PressRelease Press Release
  • Mortgages & Housing

BSA welcomes changes that help to level the playing field between building societies and banks

The Building Societies Act 1986 (Amendment Bill) successfully passed its legislative stages as part of wash up today.

BSA Card
  • BSA.PressRelease Press Release

With a third of people relying on their savings to get by, UK Savings Week aims to help those who can get into a better savings habit

The inaugural UK Savings Week runs 26 September to 2 October 2022

BSA Card
  • BSA.PressRelease Press Release

The beauty of simplicity in a complex world

Speaking on the first day of the Building Societies 2023 Annual Conference at the ACC in Liverpool, BSA Chief Executive, Robin Fieth, talked about the...

BSA Card
  • BSA.PressRelease Press Release
  • People

Debbie Enever to join the Building Societies Association as Head of External Affairs

Debbie will join the organisation on 1 September 2023. 

BSA Card
  • BSA.PressRelease Press Release
  • Thought leadership

A partnership to put mutual and co-operative businesses at the centre of the new Government's plans for growth

Mutual trade bodies Co-operatives UK, The Association of Financial Mutuals, the Building Societies Association and ABCUL, have written to Sir Keir Sta...

BSA Card
  • BSA.Event Event
  • People

Women's Leadership Programme - "The Becoming Journey®"

Taking place between 12 Sept. - 3 Dec. 2025