Jan 21 – The Green Deal

The Department for Business, Energy & Industrial Strategy (BEIS) is not one which readily trips off the tongue when considering where the major housing and mortgage market impacts will come from.  However, it is a key driving force in the areas of Artificial Intelligence (AI) and in promoting innovative technology in the wider financial services sector (Fintechs).  BEIS is leading the debate, setting the agenda and promoting competition through funding to ensure the UK is at the leading edge of world developments.  In this regard, they are undoubtedly driving the innovation agenda.  This will impact our lives both in work and as consumers.  The impact of Covid on the way we live and work has undoubtedly given Government the confidence to push the innovation agenda quicker.

One other area where they will have huge impact is on their approach to dealing with climate change.  On 27 June 2019, the UK government amended the Climate Change Act and set a legally binding target to achieve net zero greenhouse gas emissions from across the UK economy by 2050. This world-leading target will bring to an end the UK’s contribution to climate change.  As a core part of that we have the move to ban the sale of petrol and diesel only cars by 2030.  This however is nowhere near enough.

There is also a two pronged attack on the housing market in England and Wales which the devolved governments will amend for their markets.  Firstly, there is a consultation, now closed, on the private rented sector.  Under this, BEIS has proposed its preferred policy scenario for improving the energy performance of privately rented homes.  Under these plans all rental properties must have an Energy Performance Certificate (EPC) rated Band C or better.  This will be a requirement for all new tenancies from 2025 and for all tenancies from 2028.  This proposal will require landlords to invest significantly in their property portfolios to improve properties that mostly in category E or worse.  Brokers will have to work with their landlord clients to raise the required funds if government grants are insufficient.

In addition to this, BEIS is also consulting on lenders having to produce regular data on the average EPC rating of their lending book.  The intention is to generate league tables and measure lender against lender.  There will be a push for mortgages that allow greater lending to more energy efficient homes (cheaper to run) or for cheaper interest rates to incentivise people to upgrade their property.  Whilst a consultation, and the ideas are seen as “voluntary”, there is no doubt that this will be coming.  The new benchmark will be an average lending book portfolio of EPC band C.  This means that in order to accommodate some properties that will be in lower categories, a significant number will have to be in band B or better.  A number of listed buildings or flats in “multiple possession” could create a drag in some portfolios.

We have been involved in workshops on this and the consultation is on the pace of change, not on whether this will occur.  Indeed, early indications are that lenders will have to record a current EPC at all points where they transact.  This would include purchase, remortgage and product transfer.  If the existing EPC is more than 10 years old, a new one will be required.  Although not part of current proposals it is clear that penalties will be applied to mortgage portfolios that are less energy efficient in the not too distant future.

So those lenders who have been heavily into new build in the last decade may have an advantage over those that have not.  But lenders will have to consider whether they will lend on properties that have an EPC lower than C and what requirements by way of improvements they will need to build into their mortgage offers.  Another market complexity that the good broker will be able to advise on.

Robert Sinclair
Chief Executive, AMI