The Financial Conduct Authority’s director of retail banking, David Geale, recently delivered a speech outlining the regulator’s view on the future of green mortgages and how lenders must support the decarbonisation of the UK’s housing stock.
Although his speech was predominantly directed at the owner-occupied lending market, it had some interesting read-across for the buy-to-let sector.
The FCA’s message to the mortgage industry was clear: lenders could not attempt to ‘green’ their mortgage books simply by lending largely on new-build and A-to-C properties; they must show how they would support the net-zero agenda by raising the energy efficiency of housing stock as a whole.
Real innovation in the sector will come to the fore
In the buy-to-let sector, this is a pressing issue. While the industry awaits the government’s response to its 2021 proposal to introduce a minimum level of C on energy performance certificates (EPCs) for privately rented property, the direction of travel is clear.
For brokers, this is an opportunity. From improving landlord education to finding the financial solutions to facilitate property upgrades, this will enable brokers to have positive interactions with clients in the coming years.
So far, as with owner-occupied mortgages, much of the green lending focus has been on the front end of the book, mainly through discounted rates for properties rated EPC A to C.
This won’t be solved by one group in isolation but through a combined effort and a strong legislative platform
Landlords increasingly have been buying this type of property regardless of pricing incentives. Paragon’s recent report, ‘Raising the standards of privately rented property’, highlights a 165% increase in the number of privately rented homes with a rating of A to C in the past decade, with the proportion of homes in the rental sector at A to C now outweighing the owner-occupied space.
The widely acknowledged challenge is how to transition the six in 10 rented homes currently at D or below to a minimum of C, and this is where real innovation in the sector will come to the fore.
Paragon, along with the rest of the market, is examining solutions to help customers retrofit their properties, supporting them to overcome some of the hurdles that such a momentous challenge presents.
A number of things would help the industry, from landlords to suppliers to lenders, to move forward.
If the government creates a gold rush by implementing an impractically short deadline, good tradespeople will be overwhelmed
First is clear government direction. We view the delay in the government’s response to its consultation as positive; it shows it is listening and it appreciates the scale of the retrofit issue. Rushed legislation is to the detriment of everybody and could lead to a multitude of unintended consequences.
We hope the government’s response will include a sensible timeframe and some clear steps to facilitate change. Confirmed legislation will give firms the confidence to proceed with plans they have in the pipeline.
Second is the introduction of a kitemark-style system for the technology that will underpin property upgrades. Landlords, and lenders, need confidence that they are investing in tech, from solar panels to heat pumps, that has been approved by the government.
A number of things would help the industry, from landlords to suppliers to lenders, to move forward
Third is the skills base. Anybody who has had work done on their property recently understands the challenge of finding a good tradesperson.
If the government creates a gold rush by implementing an impractically short deadline, good tradespeople will be overwhelmed and there will be an open door for rogues.
This is a complex challenge with a myriad of issues that need to be addressed, but it’s not insurmountable.
For brokers, this is an opportunity
As the FCA’s Geale highlighted in his speech, it won’t be solved by one group in isolation but through a combined effort from all interested parties, and a strong legislative platform on which operators can build plans with confidence.
Louisa Sedgwick is mortgages commercial director at Paragon Bank
This article featured in the May 2023 edition of MS.
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