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The Energy-efficiency of a Property Could Become a Key Factor in Mortgages

In order to encourage improvements that will increase the energy-efficiency of properties in the UK, it has been suggested that financial gains need to be put in place. And, with plans already underway, the accuracy of mortgage lending could play an integral role in meeting these requirements.

BRE, Nationwide, the Energy Saving Trust and many other companies are currently involved in the LENDERS scheme, a project that involves increasing the accuracy when estimating how much a property is spending on energy. By doing so, they believe this will help to promote a worthy cycle in the property market for energy-efficient homes.

In short, LENDERS is looking to replace the broad estimates that mortgage companies currently use to estimate a households energy usage with far more accurate ones. This, in turn, will then help to improve the accuracy with which the customer’s mortgage repayments can be calculated. Lower energy bills will be found in a low-energy home, which then suggests that these homeowners can afford larger monthly mortgage repayments.

Understanding the Real Costs for a Home

This is a UK-funded project that is set to run for 18 months, with three months already undertaken, and is providing a link between the running costs of a home and its energy information, which gives mortgage lenders valuable statistics to consider.

Their aim is to encourage more lending for those remortgaging or purchasing energy-efficient properties in a bid to speed up the improvements needed in properties to make them low-carbon.
Speaking about the background of the project, Associate Director of BRE Wales, Andy Sutton, said: “We conceived the idea of getting more accurate energy costs as part of mortgage considerations in 2010, and Constructing Excellence in Wales subsequently funded us to carry out a small study. Later, in 2014 UCL and UK Green Building Council (UKGBC) independently had a similar idea and published their own study.

“I’m a firm believer in collaboration over competition, so it made sense to scale up the study together. The Innovate UK supported project therefore has the right mix of financial and dissemination bodies that has the clout to demonstrate the results to industry.”

The Aim of LENDERS

With such an ambitious project, it’s important that those involved are clear on what they are and are not trying to achieve, and Sutton outlined exactly what the LENDERS scheme had to do with the broader picture of buying homes and energy efficiency:

“There are lots of interesting ideas around at the moment. A study in the States suggested that low-energy homes have a lower risk of default. There’s also been the suggestion that estate agents and surveyors should be valuing energy efficient homes more highly. These are interesting propositions, but are separate issues. The LENDERS project is setting out to prove that mortgage lending can be done with more accuracy. Calculations are currently taking a very broad guess at energy costs, but it shouldn’t and doesn’t have to be this way.”

Getting More for Your Money

The idea of the scheme is that as a mortgage customer who is looking at a low-energy home, you are expected to receive a larger maximum mortgage to purchase a house. The project is also looking at ways that mortgages can encourage people to buy high-energy homes to improve, with terms in the mortgage that ensure this is carried out. Rather like some clauses that are seen at present like electrical rewiring and cavity wall tie replacement, the energy efficiency improvements will be detailed as conditions in the mortgage.

Essentially, buying a property with a higher EPC rating should theoretically mean you aren’t any worse off, however, if you had lower energy bills you may be able to afford a more energy-efficient home.

Speaking about the importance of mortgages and the decisions involved, Duncan McCombie, Operations Director of the Energy Saving Trust, commented: “We make short-term financial decisions every day, but mortgages are a much longer-term consideration, so a perfect time to engage customers. This could mean buying a more energy efficient property in the first place, or if the buyer has to compromise on that for many possible reasons, taking a B or C-rated property and making some additional energy efficiency interventions.”

Long-term Sustainable Decisions

Duncan also believes that taking the initial step with one’s home could then lead to further sustainable choices and that buying a home after considering the energy costs, could be the start of these.

“After taking this initial conscious decision, customers are going to be more likely to be receptive to other energy efficiency messages. That might be around behaviour in the home, or perhaps considering their transport choices. I think these things will resonate when looking at the long-term decisions, and material change.”

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