Green Mortgages
Doing your bit for the environment
Green mortgages are talked about but little understood. Paul Broadhead from the Building Societies Association explains
by Paul Broadhead, head of mortgage policy Building Societies Association
The Government’s commitment on climate change is well documented and has been much debated. By 2020 the UK is committed to achieving a 34% reduction in carbon emissions from 1990 levels. In addition, 15% of our energy will be sourced from renewable sources. This is driven by the EU commitment that 20% of energy used in Europe should come from renewable sources by 2020. These however are only the short-term goals. In the long term, the Coalition Government has set the target of reducing carbon emissions by 80% by 2050. The ambitious targets to tackle climate change have led to much greater scrutiny on our use of energy. Households are huge consumers of energy and consequently emit vast levels of carbon. According to the Department for Communities and Local Government’s analysis of existing buildings, a little over half of that energy used is for space heating and together with water heating this makes up 73% of energy used by homes.
So what’s stopping consumers from taking more of an interest in green measures, and how can lenders help? Mortgage lenders may have a part to play in helping to reduce carbon
emissions. However the definition of green has become so wide that the variety and type of offerings is confusingly diverse. Some offer real ecological benefits whereas others are mainly a PR exercise.
What’s on offer To look at the different types of offerings, at the one end of the scale is offsetting measures, where the company may offer to plant some trees to off-set the amount of carbon produced by the home. Whilst this is worthy, this type of abstract initiative doesn’t directly reduce carbon emissions, rather it offsets carbon produced.
A valid and common contribution from lenders is to offer a further advance on the mortgage to allow the householder to make improvements to the energy efficiency of the property. This is a good, simple to understand way of allowing people to reduce their carbon footprint, however it is more of an enabler than an encourager and is unlikely to sway anyone to take action. At the more niche end of the scale is a lender who will offer different rates of interest paid on the mortgage depending on the energy efficiency of the property. This is a great motivator for making improvements, however accurately measuring the energy efficiency of the property remains difficult. In the short term, the green deal is likely to receive more attention than green mortgages in helping people make energy efficiency improvements
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to their homes. This initiative from the Department for Energy and Climate Change will allow homeowners to make energy efficiency improvements and pay for them over the lifetime of the installed measure through their energy bill.
future So will green mortgages (mortgages that fund initiatives that directly reduce carbon emissions) become more prevalent in the future? In the current economic climate, people are very focused on cost. Lenders are seeing little demand for green products and until that demand increases we are unlikely to see a raft of green mortgages entering the market. However, a few years down the line when the economy starts to pick up, consumers may well be able to choose mortgages on the basis of green credentials. Another hook for green mortgages could be a significant rise in the cost of power, this could be a driver for consumers to become more energy efficient. When we reach this point we will move away from the more abstract green mortgages to ones which have a direct impact on people making energy efficiency improvements.
I expect that a number of lenders will seek to establish themselves as a market leader over time , but that there is a need for some form of government incentive to make being green pay for consumers. Whether this is through a continuing subsidy or a financial penalty for being energy inefficient remains to be seen. n
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