The Financial Conduct Authority (FCA) has cautioned mortgage lenders against adopting a narrow-minded approach by excluding non-energy efficient properties from the market. David Geale, the FCA’s director of retail banking, discussed the potential growth and opportunities of green mortgages at the London Institute of Banking & Finance mortgage conference. Green mortgages offer lower rates for homes with strong Energy Performance Certificate (EPC) ratings or incentives for homeowners to improve their properties’ energy efficiency.
Geale highlighted the significant opportunities and inherent risks in the sector, including the impact of emissions from mortgaged properties on lenders’ decarbonisation strategies. Lenders who fail to create credible plans for meeting their decarbonisation targets may face a variety of consequences, including damage to their reputation or being accused of greenwashing.
By focusing solely on the most energy-efficient properties, lenders could inadvertently make it more challenging or costly for people to secure mortgages for properties with lower energy efficiency, even if these homes could be substantially upgraded. This approach could penalise homeowners who may not have the means to make improvements without assistance or who are already vulnerable.
Approximately 60% of the UK’s housing stock has an EPC rating of D or below. Geale also noted the risk of product and incentive innovation outpacing consumer demand. To mitigate this, he suggested making incentives more practical and usable, as many people may not have the funds to make energy-efficient upgrades immediately after purchasing a home.
He praised emerging green mortgages that offer incentives at any point during the mortgage’s lifetime, allowing borrowers to decarbonise their homes when they are ready. Trudy Woolf, sustainability director of Legal & General Surveying Services, welcomed the FCA’s commitment to sustainability and green home financing, noting the rapid development in this area. However, she emphasised that brokers and lenders must also prioritise sustainability efforts to achieve significant, long-term progress in decarbonising the UK’s housing stock. Woolf also stressed the need to address the low customer awareness, education, and understanding of green mortgages to unlock their untapped potential and create a better future for everyone.
