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Should Mortgage Providers do more to Recognise Low Carbon Homes?

Should Mortgage Providers do more to Recognise Low Carbon Homes?

18th March 2022

Low carbon homes make mortgages more affordable, and we think providers should recognise this in their affordability criteria. So why are we building low carbon homes? According to the Energy Saving Trust, around a fifth of the UK’s carbon emissions come from our homes, with heating making up the lion’s share. The UK has committed to reaching net-zero carbon by 2050. In addition, households are feeling the pinch from increasing energy prices. The energy price cap will rise by 54% this April, further increasing the pressure on people to use less energy at home. 

Suppose the UK is to stand any chance of reaching its carbon commitment. In that case, a move away from natural gas reliance towards a more significant rollout of electrified heat sources needs to happen soon. Certainly, more action is required from the government; however, we believe mortgage providers also have a role in promoting and incentivising the purchase of greener homes.    

When buying a home, for most people, one of the first hurdles to overcome is getting a mortgage offer. When lenders process a mortgage application, they undertake an affordability assessment using a range of criteria such as outgoings, income, debt and credit history to assess the ability to repay the mortgage both now and in the future. However, to calculate likely expenditure on fuel, many mortgage lenders will use a standard set of energy expenditures in their assessments rather than taking the energy efficiency of the individual property into account. This is a problem because the energy efficiency of different properties varies hugely. 

The average EPC rating, a measure of household energy efficiency, is band D, around 60% of potential household fuel efficiency in the UK. According to Ofgem, the average household fuel bill is around £1277 annually (Feb 2022). This EPC rises to band B (81-91%) for most new build homes, massively reducing energy costs. For the most energy-efficient ‘A-rated properties, for example, our development The Paddocks at Hambrook, where solar power and air source heating are coupled with very high-efficiency thermal insulation, the net energy requirement can be close to zero.  

At Autograph Homes, we believe recognising and fixing this flaw in the mortgage assessment system would give prospective homeowners greater buying power. It would allow buyers to save on running costs or choose a slightly more expensive home, knowing that the combined energy and mortgage costs will be lower than a cheaper but less energy-efficient property. Knowing that the lenders will accommodate a higher property price would also give many more housebuilders the confidence to incorporate low carbon technologies into their developments.

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