This article first appeared in the Winter edition of Society Matters.

By Paul Broadhead, Head of Mortgage and Housing Policy, BSA

COP26 is over, the pavilions have come down and the thousands of people who attended have gone back to one of the 200 plus countries that they came from – hopefully not alone by private jet!

It seems that a number of meaningful promises were made during the 12 days, most hopefully the USA and China agreeing to co-operate on climate change.  There were also pledges to reduce methane emissions and end deforestation.  It is now down to Governments across the world to deliver.   

The UK may not yet be seeing the levels of climate related disruption being faced elsewhere, but the incidence of flooding has increased in severity and frequency, making flood resilience for homes an important issue.  I can’t imagine the impact and reaction were large parts of the Outer Hebrides to disappear as a result of rising sea levels, a real risk reported during COP.    

Climate change is already hugely distressing at an individual and community level as well as being economically damaging.  It is a top-level risk for lenders and insurers and quite rightly much on the mind of the Bank of England, charged with oversight on risk and ensuring financial stability.

The time for action is now and it will be complex and hard.  Much of it must of necessity come from governments, but all have a part to play and the hope is tangible.  The big picture is scary but all, including lenders, brokers and all those involved in the housing ecosystem can make a difference by acting in the areas that they can influence.

Decarbonising our homes

Amongst BSA members, the focus is particularly on mortgage assets, our homes.  These are responsible for an unhealthy chunk of all carbon emissions, up to a quarter if you include all the built environment.

Back in September 2019, we started work on a sector-led BSA Green Finance Taskforce, which rapidly decided to focus its attention on the need for and means to help people make their homes more energy efficient. 

Estimates indicate that of the 28 million households in the UK, up to 19 million live in homes that will need work to make them energy efficient, a must-do if the UK is to achieve our Governments legal commitment to reach Net Zero by 2050.  It’s a tall order, given that homes are owned mainly by individuals; vary in age, style and building materials and that right now there is a mismatch between the cost of the work needed to make a home energy efficient and the associated payback period.

BSA research from YouGov in September illustrates the gap between the public’s caring and doing.  Amongst the respondents:

• 72% said the energy efficiency rating of a property was important to them when looking to buy a new home.
• But 50% saw meeting the upfront cost of improving the energy efficiency of their home a barrier to action.  Almost half (46%) felt it would take too long to recover these costs and 40% were unsure how much money they would save.
• The majority thought that some energy efficient improvement would add to a property’s value, for example replacing the windows and doors (73%) and upgrading the central heating system (70%).
• However, just 15% have actually replaced their windows and doors and only 11% have upgraded their central heating system in the last 12 months.

When asked what would encourage work to improve energy efficiency, over half said lower Council Tax (56%) or a cheaper energy tariff (53%).  A cheaper mortgage was cited by 43% and evidence that the improvements would add value to their home was a strong incentive for 39%.

We already have 11 building societies offering green mortgages or further advances and there are others amongst the banks.  For the Ecology Building Society there is no change as they have been leading the charge on all this since their launch 40 years ago!  So the funding is there but consumer demand remains low. 

These factors are guiding the next stage of work by our Green Finance Taskforce with the focus on two areas: best practice learning for additional BSA members looking to enter the market; and the delivery of a comprehensive consumer guide in collaboration with partners.  With this we aim to help people understand which energy improvements would work for their property; how to find a trusted supplier; information on payback period and be signposted to appropriate finance options.

Across all of this is we are looking to ensure that the language we use with consumers is not: “do it or we are all doomed” but shows the benefits of cleaner environments due to lower carbon emissions; safer for the environment and our futures, and healthier for people, their pockets and their communities.

We are also continuing our work with the Green Finance Institute (GFI) and the Coalition for the Energy Efficiency of Buildings (CEEB).  This includes a range of activities, including a Trustmark-held roundtable exploring how the finance and industry trades can work together to support investment into home retrofitting. 

Government action

Of course we need Government action too.  In particular a multi-parliament, joined-up policy framework which gives consumers for one clarity on the plan to 2030, 2035 and 2050.  Many will hold off doing work on their homes in the expectation that government subsidies to pay for some or all of it will come. Others will wait for heat pumps to get smaller and cheaper or for the assurance that they won’t become the Betamax of the central heating world, with Hydrogen taking the role of VHS.  It is a shame that the decision on Hydrogen has been delayed until 2026.  There is also a role for governments in protecting homes from the effects of climate change.

That said, in its Heat and Buildings Strategy, published on 19 October, the Government tipped its hat to a lot of helpful moves, amongst them – the need for the approach to be fabric first (insulation); the recognition that improvements need to be appealing to the consumer and that raising consumer awareness is critical.  

Much media air time was given to the non-availability of mortgages for less energy efficient homes.   We wait for the BEIS response to the full consultation on the role of lenders in this space, in the hope that a two tier market is avoided and a just transition achieved. There seems little point trapping anyone in an energy inefficient home because they can’t afford to improve it and the person who wants to buy and improve it can’t because lenders can’t lend because their portfolios are mandated at an average of EPC C.  I am positive that common sense will prevail.

Next steps:

Read about the Government’s Heat and Building Strategy at https://www.gov.uk/government/publications/heat-and-buildings-strategy