01/12/2014 | Gary Hartley | Energy and water efficiency at home | advantages of energy efficiency, BRE, energy bills, energy efficiency mortgage, EPC, estate agents, financial incentives, green homes, Wales, Zero Carbon Hub
Mortgage lenders are using generalised assumptions on energy bills and should consider a property’s actual EPC rating when considering mortgage affordability and lending. That’s the conclusion of a new report from the Building Research Establishment (BRE) and the Wales Low / Zero Carbon Hub. The study, which looked at over a hundred properties across the UK, found a clear link between EPC ratings and energy bills. Similarly sized homes can have fuel bills that vary by more than £90 a month which can be predicted by their property's Energy Performance Rating, and these variations should be factored into mortgage calculations, say the report’s authors. It’s not an insignificant number to factor in: £90 a month could enable a customer to meet affordability criteria or borrow an additional £15,000 over a 25 year mortgage. This is the kind of financial ‘carrot’ that could prove very useful in the race towards a more energy efficient residential housing stock. Andrew Sutton, from the Wales Low/Zero Carbon Hub, said:
"By encouraging mortgage lenders to consider actual fuel costs, the lenders can offer mortgages that are capped according to EPC rating, thereby offering higher mortgages for more energy efficient homes, and be more confident that the borrower can afford their repayments. “This provides a route to valuing energy efficiency that, in time, could stimulate market values for low energy homes improving as well as potentially creating mechanisms for funding refurbishment works that raise the EPC. Both these measures act directly on the private homes that have, historically, been so hard to influence.”
Private houses make up about 63 per cent of existing homes, so getting through to homeowners in ways that encourage action on energy efficiency is paramount - not just for the Welsh Government’s target of three per cent year-on-year carbon reductions, but for the UK’s binding emissions targets as a whole. Current mortgage calculations use broad estimates of fuel costs averaged across all UK homes, but proving a strong link between EPCs and real bills could bring in a smarter approach - and one that could be argued as more responsible lending. So does Andrew see a change ahead? And how soon are we talking?
"I would hope that in three years’ time mortgage products that are linked to the EPC rating of the property to be purchased are commonplace; it does seem in everyone's interest that borrowers can afford their repayments, and with fuel bills rising, these costs should be carefully considered to be confident of that affordability.