In her column for Mortgage Strategy, Paragon Bank Commercial Director for Mortgages Louisa Sedgwick says the decarbonisation of the UK's housing stock is a complex challenge, but it's not insurmountable if we all work together. This column was published in the May edition of Mortgage Strategy. 

The FCA’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 cannot simply attempt to ‘green’ their mortgage books by largely lending on new build and A-C properties; they must show how they will support the net-zero agenda by raising the energy efficiency of housing stock as a whole.

In the buy-to-let sector, this is a pressing issue. Whilst the industry awaits the Government’s response to its 2021 proposals to introduce minimum EPC C levels for privately rented property, the direction of travel is clear.

EPC opportunity

For brokers, this is an opportunity. From improving landlord education to finding the financial solutions to facilitate property upgrades, this will create opportunities for 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-C.

Landlords have been increasingly buying this type of property regardless of pricing incentives. Our recent report, Raising the standards of privately rented property, highlights a 165% increase in the number of privately rented homes with an EPC 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 under to a minimum of C, and this is where we will see real innovation in the sector come to the fore.

Paragon, along with the rest of the market, is examining solutions to help our customers retrofit their properties, supporting them to overcome some of the hurdles that such a momentous challenge presents.

There are a number of factors that would support the industry - from landlords, to suppliers, to lenders - to move forward.

Clear direction

The first is clear Government direction. We view the delay in the Government’s response to its consultation as positive; it shows they are listening and appreciate 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.

The 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 technology – from solar panels to heat pump systems – that has been approved by Government.

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, the good tradespeople will be overwhelmed and there will be an open door for rogues to operate.

This is a complex challenge with a myriad of issues that need to be addressed, but it’s not an insurmountable problem. As David 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.

For more information visit our Green Mortgages page.