Lenders Core Report

On 18 July 2017, a report was published by a consortium of industry experts, making the case for factoring energy ratings into mortgage offers. The consortium includes; Arup, BRE (Building Research Establishment), the Energy Saving Trust, UCL Energy Institute, the UK Green Building Council, and others.

The LENDERS project set out to demonstrate that improved analysis of household energy costs could improve mortgage affordability assessments. As a result, larger loans could be accessed by mortgage borrowers, depending on the energy efficiency of the property. The hope is that if home buyers are offered higher mortgages for buying a lower energy home, purchasing behaviours may shift towards that part of the market.

Funded by Innovate UK, the project looked at data from 40,000 homes and demonstrated the link between energy efficiency and household fuel bills. The report suggests that, although estate agents’ property listings are required by law to display energy performance certificates (EPCs), energy bill costs and energy efficiency are relatively low in purchasers priorities, and are not considered in mortgage lenders’ affordability calculations.

Buyers would not have to borrow the additional money, the report says, but they would be attracted by the implied ‘perception of value’ of the higher borrowing limits, resulting in well-insulated homes selling faster and commanding a modest price premium. The report’s recommendations are the latest in a series of incentives aimed at encouraging home insulation and greener properties for home buyers.

Richard Twinn, a policy adviser at the UK Green Building Council, said: “This new research shows that if lenders use information about a property’s energy performance when making lending decisions, this could encourage homebuyers to choose more efficient homes by increasing the size of mortgage available for these properties.”

Claire Perry, MP, Minster for Climate Change and Industry, said: “This government is committed to making home ownership affordable for all. More accurate estimates of household energy costs could improve lending practices, lead to new sources of finance and increase energy efficiency across the country. That's why government funded this project through Innovate UK and looks forward to seeing the industry take action in response.”

The consortium has created a new consumer calculator www.epcmortgage.org.uk to demonstrate the cost benefits of fuel efficiency, enabling would-be buyers to see the benefits of energy efficient homes.

The Lenders Core Report is available to download from UK-GBC here.

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