UK houses

The Lender’s Corner: How can we bring borrowers along on the net zero journey?

Climate change is the defining issue of our generation, yet as the shift to a low carbon world gathers pace, a number of key questions remain.

Many homeowners know there’s a need for change but are unsure how to get there. Others may not realise the role they will need to play, or the options out there. This summer the world has just seen the hottest weather ever recorded as climate change and the resulting shifting weather patterns pose risks to our way of life and livelihoods that must be addressed.

Six months ago, on 13th January, an independent review of the country’s “Net Zero” ambitions was published. It looked at how the UK might deliver its own targets in a manner that was affordable, efficient and in a pro-business way.

To get to net zero we all need to work together, whether lenders and government, lenders and consumers, or brokers and lenders. Maintaining a flexible outlook to keep adapting, keep learning and keep searching out the latest advice and solutions will be key.

Rewarding our customers for energy efficiency makes sense.

The UK has not only got the oldest housing stock in Europe with around one in five homes failing to meet the Government’s definition of a “decent home”, but UK homes remain among the least energy efficient in Europe. Homes in the UK lose heat up to three times faster than energy-efficient homes in countries like Germany and the UK housing stock contributes around 16% of all UK carbon emissions.

Because of the poor quality of UK housing, the government has proposed key deadlines for, initially landlords, but eventually all homeowners, to bring their properties up to minimum standards of energy efficiency. The proposed changes to Buy-to-Let EPC legislation is intended to kick-start the retrofit of UK stock.

Increasingly, consumers are becoming aware of the need to decarbonise their homes and are constantly looking for products that support this approach so there’s real scope for lenders to widen the choices available.

As lenders, it’s clear that we need to bring consumers with us on a net zero journey and demonstrate the benefits of making these changes.

The way the industry currently measures the energy efficiency of a property is through an energy Performance Certificate (EPC). EPCs were first introduced in 2007 to help buyers and renters choose a property.  Every home listed for rent or for sale needs a certificate.  The certificate is valid for 10 years.

EPCs allow consumers and other stakeholders in the industry such as lenders, who are looking to benchmark their mortgage portfolio or for the government who are looking to set minimum efficiency requirements to compare properties.  EPCs estimate a property’s likely fuel cost, energy use and carbon dioxide emissions and rate the property from A (best) to G (worst).

Here at Leeds Building Society, we want to ensure we are responding to the needs of our members and our broker networks. Being able to demonstrate our purpose and principles by making a direct link between our products and our actions is very important to us.

We were the first UK lender to offer a carbon neutral mortgage, where it offset the forecasted environmental impact of each home during the initial fixed term of the mortgage.  In 2021, the Society introduced green mortgage deals offering preferential rates and cashback deals for the most energy-efficient homes, as part of our policy of linking our products with positive environmental impact.

And last year we offered enhanced affordability for mortgages on the most energy-efficient new homes because we can use more detailed data about projected fuel bill savings for new-build homes with an A or B EPC rating, enabling customers to borrow more than on an equivalent, less energy efficient property.

Crucially, as well as being the right thing to do for the planet, ensuring homes are as energy efficient as possible also makes financial sense for homeowners, and we’re continuing to look at more ways to further support our members.

And it’s important that employers also take responsibility for their own carbon footprint, including their own property portfolio. For example, when we moved to our new head office in 2020, we upgraded its EPC rating from D to A.  We’re constantly assessing our own impact and making good progress against the challenging targets we’ve set ourselves to reduce our own carbon footprint. We aim to reach net zero operations by 2030.

So how is the proposed retrofit of the housing stock going?

The government wants homes in England and Wales to reach a minimum EPC level of ‘C’.  Despite some suggested deadlines for minimum energy efficiency standards, no legislation has been forthcoming.  At present, in England just over 40% of assessed homes currently reach a C rating or above.

It’s no surprise therefore that against a back-drop of political uncertainty, rising energy prices and soaring interest rate increases means there has been little incentive for landlords to kick-start the retrofit revolution. Whilst around 85% of the public believe that climate change is an important issue, only 35% have adopted, or are planning to adopt, energy efficiency measures anytime soon.

Climate change solutions will keep evolving, and a “big ticket change” like investing in a heat pump might not necessarily be the best option for everyone. For some, cheaper actions like changing everyday habits or switching to a green energy supplier could make a more tangible difference.

There is no doubt that the costs of meeting the Government’s net zero targets are enormous. According to the excellent “Net Zero Homes Report”, published last year by UK Finance, it is estimated that it will cost UK homes approaching £300 billion to reach the required EPC ratings.

What is certain however, is that this is an issue that demands all our focus and working together is the best route to achieving lasting and meaningful change.

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