It may not come as a surprise that green mortgages are receiving significant attention. But why is this the case?
New build properties are generally more energy efficient than older properties. However, older properties make up most of the UK housing market and are often less energy efficient.
Mortgage lenders face growing pressure from the government and the Financial Conduct Authority (FCA) to assess the ratings of their existing loans’ Energy Performance Certificate (EPC). Regardless of size, all FCA-regulated lenders must aim for an average EPC rating of ‘C’ across their portfolios by 2030.
Including new build properties in their lending portfolios could help lenders meet this requirement. New builds often have A or B EPC ratings, which can offset the lower ratings of older properties. As a result, many lenders are introducing new build property criteria and offering incentives.
But does this address the issue, or does it simply create the appearance of greener lending practices?
Why should we ALL care about how green our house is?
The sustainability agenda has not been introduced to balance back books or create attractive green EPC charts. It is being promoted to meet the Government’s targets of cutting greenhouse gas emissions to net zero by 2050. UK housing stock accounts for about 40% of total carbon emissions each year.
On average, houses with an EPC rating in England and Wales were rated band D in the financial year ending 2019. This falls short of the Government’s goal to have as many homes as possible in EPC band C by 2035. Should we focus more on improving existing homes instead of concentrating solely on new builds?
Many lenders offer ‘green’ mortgages with benefits such as lower interest rates or cashback deals. These incentives are often available only for properties with C or above EPC ratings. Therefore, it may be worthwhile to consider making improvements before your next re-mortgage.
What about buy-to-let?
When it comes to Buy-to-Let (BTL) properties, prioritising the Energy Performance Certificate (EPC) rating is essential. Starting from 2025, all BTL properties commencing a new tenancy must have a minimum EPC rating of ‘C’. Existing tenancies have until 2028 to comply with this requirement. This implies that many BTL properties will need energy efficiency improvements within the next four to seven years. Failing to meet the required standards may make the property unsuitable for letting.
What can I do about it?
It’s worth reviewing your EPC certificate to check its most recent rating. You can get a copy from the Government’s website here. Recent certificates provide more information about the work required to improve the rating and the estimated cost.
If it has been some time since your last EPC, you can arrange a new one here.
Check Your EPC Certificate for Accuracy
Most property investors and homeowners reading this will likely need to take some action. Financial assistance options remain limited until a replacement for the Green Home Grant scheme becomes available. However, as an independent mortgage adviser, we can help you release funds from your existing property or buy-to-let (BTL) portfolio.
Capital raising can be secured for property improvements if you have sufficient available equity. Even if you are currently tied to fixed rates, options such as further advances or additional loans secured on your property may exist. We can also assess whether breaking a current fixed rate is worthwhile for releasing capital.
Financing Options for Property Improvements
For BTL, many landlords are locked into 5-year fixed-rate mortgages. You may only have one chance before 2025 or 2028 to refinance at the end of a fixed term.
After 2025, if your properties still do not have a minimum EPC rating of ‘C’, you could face difficulties when re-mortgaging. Lenders are unlikely to offer further lending against a property that cannot legally be let unless you hold valid exemptions.
There is also speculation that properties below an EPC rating of ‘C’ may not see the same value increases as those in higher brackets. Reviewing your options now could help you address this issue early and potentially benefit from property valuation increases while others catch up.
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