Major report urges banks to lend more to properties with higher EPC ratings.

The Government funded report by The Lending Group has been looking at innovative ways to encourage the public to make energy efficiency improvements to their homes and making these homes more attractive to buyers.

The report suggest that homebuyers could take out bigger mortgages of those properties that have a higher EPC rating. This is because buyers of efficient homes will have more disposable income because of the lower energy bills and therefore afford the slightly higher mortgage payments.

Analysis from the Nationwide Building Society, Arup and other building groups have calculated the differences and suggests an extra £4,000 for A rated properties being compared to C-E rated properties and up to £11,500 extra compared to G rated properties. This would benefit the new build industry in particular as new builds tend to have higher EPC ratings than older building due to the stricter building regulations.

The report shows that most lenders look at the Office for National Statistic data on energy bills which is based on a small dataset of properties but does not reflect the efficiency of the property being bought. The new report examined data from 40,000 properties to fully understand how EPC ratings affect energy bills. This allowed them to see what could be afforded in additional mortgage payments to those that had lower energy bills.

There has been other suggestions in the past on how to link house prices with EPC ratings, one of which was a stamp duty discount for more efficient properties and was reported that ministers were considering the idea back in March 2016.

Elmhurst Energy contributed to the report to allow The Lenders Group to gain a deep understanding and interpret EPC data. Stuart Fairlie, the Technical Director for Elmhurst said :

“We have first-hand experience of home energy reports and EPCs during our long history in energy efficiency within people’s homes. We truly believe that any incentives that promote people to choose more energy efficient homes are good for everyone. The banks and building societies need to embrace ‘big data’ and use this to make more informed lending choices. We hope this and other incentives, like discounts on stamp duty for energy efficient homes, will start to get people think about the potential fuel bill of the property they intend to purchase. The reality is that for most families this is their largest bill after the mortgage repayment. By understanding the EPC and the valuable information it contains, everyone will be better off.”

However, The Lenders Group did admit that any changes like this are hard to implement due to the complexity of lenders’ systems.

8 comments

  1. As usual they are missing the bleeding obvious. Low epc scores are mainly because of poor housing stock. with in many cases poor owners or Tennant’s who aren’t credit worthy for the banks in the first place and can’t afford to improve their properties. (oh, wasn’t there something called greendeal ?) . Honestly how much did these brilliant minds get paid to come up with this ! ‘Money always goes to people with money’

  2. You cannot fault the logic that buyers of more energy efficient homes will be able to afford slightly higher mortgage repayments. However this puts the onus on sellers to improve efficiency in order to make their property more saleable, but will this be the case? There is an equally valid school of thought that making less efficient home more saleable and then in some way rewarding the buyer after efficiency measures are in place will result in more improvements actually being made overall.
    I would favour discounts on council tax for more efficient homes. Yes I know the efficiency upgrades already reward more sensible home owners but the stumbling block is often not so much the will to do it but the cost of doing it, and there is less will to do it now that subsidies have been reduced. The relaunched Green Deal is supposed to address this but deep down we all know the Green deal is not really a good deal and it will fail again.
    Finally, the article says “The reality is that for most families this (energy) is their largest bill after the mortgage repayment”? Well I’d say in most cases reality really is that council tax is their largest bill after the mortgage so doing something about that will have more appeal than any mortgage lending criteria. It should also be born in mind that UK housing stock being what it is few properties rate higher than the “C” band unless an awful lot of cash is put into efficiency measures. In fact one could say that “C” is as good as it gets for most because of practical financial considerations. so as many as possible “C” band properties would be a good interim goal.

  3. With the introduction of MEES, a higher emphasis on the quality of work that Energy Assessors produce due to the legislation and the development of lower costs efficiency improvements. This would be a welcome relief to purchasing a property that is less cost effective than its counterparts. Efficiency of buildings are key to the long term plan of cost and energy savings.

  4. @Chris.
    Yes correct, council tax is my largest outgoing, double my gas and electric bill, the report is flawed.
    Mortgage lending is based mainly on the borrower’s income, and lower epc properties need more lending allowed so improvements can be carried out, released in stages as work is completed.
    People manage their fuel bills differently, so the epc doesn’t relate to their lifestyle, some never turn their heating on, some wear extra layers, some heat just one room, some people spend thousands replacing their windows but have no loft insulation, some have gravity hot water with no temperature control.

  5. The better the rating, the better the home, the better the insulation, the lower the bills, the less the people living there need to spend. The lower rated homes need the more money spent on them. Not sure how being able to borrow more to live in a more energy efficient home is going to help improve the nations poorer rated properties. How about if it is not a “D” or above you cannot have a mortgage on it??

  6. So a bigger mortgage will potentially be available for a 1980s mid floor enclosed flat than for an equivalent sized relatively new detached house, because the flat will probably have a higher EPC rating?

  7. Green taxes i.e punishing those who cant afford home improvements with higher council taxes would be a new height of tax cruelty

  8. I somewhat despair with the whole process around improving the UK Building Stock, building regulations which specify the minimum requirement and the Government which has passed numerous legislative/regulations but never enforced them and councils along with energy suppliers obligations having failed to address fuel poverty and now the another piece of regulation that purports to improve the buildings energy performance, data/analyses everywhere but this along with smart metering will not achieve any substantial change. Just remove VAT from energy efficiency improvements and rated ever household energy bill A-G would be a simple and more effective tool

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