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The road to net zero: helping mortgage brokers navigate the green transition

Read AMI Senior Policy Adviser Chloe Timperley's latest article, published in TMA Club magazine

If a client were to ask you a question about green mortgages or green home improvements, how confident would you feel to respond?

Would you be happy to have an open-ended discussion, lay out some of the big-picture considerations, and signpost to further resources and information providers? Or would you tell them you need to go away and research it, or even decline to discuss the topic altogether?

Client questions around home energy efficiency are likely to crop up more frequently in adviser-client interactions. The rising cost of living has made people more energy conscious, and the climate crisis is becoming an increasingly urgent global priority – not to mention a bigger factor to consider when buying a new home.

These issues can create feelings of helplessness. People may want to take action to reduce their carbon footprint or cut down on energy bills, but don’t know where to start. It’s only natural that your clients may turn to you for guidance, especially if it’s weighing on their minds.

This is what prompted AMI, the Green Finance Institute (GFI) and a host of industry stakeholders to develop the Broker Handbook on Green Home and Retrofit Technologies. It is a first-of-its kind resource, gathering together in one place everything a mortgage broker might need to know about green home improvements.

It covers a broad range of topics including consumer needs and motivations, the legislative and regulatory environment, individual technologies and retrofit solutions (and how they can work together), and the financing options available.

The handbook is meant to be a starting point; a tool to support you in having better conversations with your clients. It is officially accredited as structured CPD by the London Institute of Banking and Finance (LIBF), and will evolve over time to reflect new developments in the market and government and regulatory policy.

What are the benefits of green education for brokers?

If you can respond effectively to client questions and cues around energy efficiency and green home improvements, you’ll have a fantastic opportunity to strengthen your value as an adviser and ultimately deliver better client outcomes.

But some brokers may feel the knowledge gap is too wide, uncertain and ‘unknowable’ to cross. There are also a lot of fears around overstepping boundaries – do you need to become an expert in solar energy or heat pumps to give effective green home finance advice?

To be clear, we are nowhere near the point as an industry where it would be advisable or even viable for brokers to set up referral agreements with third-party suppliers of green technologies. The market for green home technologies and retrofit is still in its infancy, and issues around quality control and trust are yet to be tackled.

However, there is a difference between ‘advising’ on something and having an informed conversation. A broker’s job regularly requires them to bring matters to clients’ attention that aren’t strictly within their regulatory remit. They can talk to clients about the importance of surveys, picking a good conveyancer, or tax considerations a BTL landlord needs to think about. Green is no different.

Having the conversation might also open up avenues you had never considered before. For example, timing is a major issue in green home improvements, as often mortgage terms don’t sync up with the lifecycle of green technologies or more generally with a client’s own plans and budget requirements.

If your clients are thinking about modifying their property to make it greener and more energy efficient one day in the future, that’s information you as a broker will need to factor in – regardless of whether or not you decide to recommend that client a ‘green’ mortgage at this moment in time.

This ties in with the thrust of the FCA’s Consumer Duty regime. Delivering good consumer outcomes is just as much about ‘avoiding causing foreseeable harm’ as it is about ‘supporting consumers to pursue their financial objectives’.

What does the future of the green agenda hold for the mortgage industry?

The UK government recently updated its green finance strategy, which sets out its intention to make the UK a ‘net zero aligned financial centre’.

The FCA is also consulting on plans to broaden its oversight of Environmental Social and Governance (ESG) factors in financial services, following a proposed amendment to the Financial Services and Markets Act that would compel the FCA and PRA to ‘have regard to the need to contribute towards achieving the Government’s target of reaching net zero greenhouse gas emissions by 2050’.

Green policymaking is shifting from gentle encouragement towards demands for greater accountability and transparency from firms. Pressure both to deliver on net zero and disclose progress (or lack thereof) is going to increase from the top down. Industry is going to have to adapt, which means green technology, education and finance will become part of the mainstream, not confined to a niche subset of products and services.

In the mortgage world, this will mean increasingly blurred distinctions between green mortgages and standard ones, with energy efficiency considerations baked into standard product features and underwriting processes. To be badged as ‘green’, products will need to facilitate meaningful change –ones that simply reward customers for buying energy-efficient properties will no longer cut it.

For brokers, this won’t just be about catering to the needs of clients with specialist ‘green’ preferences. It will mean understanding how the climate crisis and the net zero agenda will rearrange consumer priorities overall.

On the lender side, this market could develop very quickly, especially if new government legislation comes in that puts lenders on a deadline to clean up the EPC ratings of their back books. We don’t want brokers to regret not having learned about this sooner, as the longer they put it off, the steeper the eventual learning curve will be.

That’s why AMI is making it a key priority to support brokers on their green education journey.

For more information, visit greenmortgageadvice.uk.

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