Green property finance - a buzzword or a movement?

While there are honourable intentions, the reality is that we are not currently in a position to create a green movement in the world of property or finance.

Being green is not particularly affordable, and it certainly doesn’t seem profitable from a housebuilding perspective across many parts of the UK. While the government looks to bring in measures to the real estate market — which, in theory, will help to reduce our carbon footprint and move us towards net zero — currently, those measures are more a list of demands with no real thought as to how, why or what it will take to put them in place.

The UK’s housing stock is notorious for being old and leaky. This tends to apply to some of the hottest properties for buyers, such as Victorian and Edwardian terraces. A study by Nationwide study found that the average cost to improve a property to reach an EPC rating of C was approximately £8,100. However, installing all recommended energy improvement measures for homes currently rated F or G would be the costliest at an estimated £25,800. Yes, there would be savings on your energy costs, but the financial repayment could go on for many years. 

Earlier this year, research conducted by Rightmove indicated that there were just under 1.7 million homes across England and Wales that do not have the potential to improve higher than a rating of between D and G.

What green products are out there?

Generally, green property finance rewards borrowers for buying or owning an energy-efficient home by offering lower-than-standard terms. Currently, this means a lower interest rate and/or cashback when taking out a mortgage. Some loans only apply to borrowers who purchase new-build properties.  Also, some lenders offer additional loans at discounted rates to existing mortgage customers for eco home improvements, such as the replacement of draughty windows, old central heating systems, and to make solar panel additions. 

We can’t deny that there are positive incentives out there that illustrate how lenders have responded to delivering the government's goal of net zero by 2050 by offering a range of green property finance products. 

The initiatives are designed to support the government’s target of net zero carbon emissions by 2050 and minimise emissions by 78% by 2035. The Future Homes Standard, from 2025, will require new-build homes to produce between 75% and 80% lesser carbon emissions. 

One must agree that there has been more progress in the BTL world of property. Landlords are more inclined to meet green requirements following the proposal of regulations from 2025, where rented property will require an energy performance rating of C or above. This change is set to be incorporated gradually, however, can landlords run a profitable portfolio if having to spend thousand on eco improvements?

Government guarantees?

To change the landscape, it’s going to take a lot more than outlining expectations and hoping the private sector will figure out how to meet those expectations. To create a sustainable housebuilding and private rental sector, there needs to be planning reform to favour green developments — and a different take on funding, too. While some lenders are offering incentives in the form of lower rates to properties with higher EPCs, this is not going to start the revolution that is needed. Perhaps government guarantees on finance for eco and Passivhaus property could be a way forward? By doing this, more lenders can enter the market in which less conventional building methods are used, with lower risk to their own businesses. Ultimately, we need to find a way to help landlords, lenders, brokers and developers sustain, or even increase, profitability, while steering towards a green future.

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