No eco credentials, no mortgage?
Mon 12 Jul 2021
Paul Bennett, Director
There are many reasons why a property may be unmortgageable – usually because it is of an unusual or non-standard construction, it has structural issues or if it’s in a derelict state – but news is filtering through of a possible restriction that property owners and potential buyers should be mindful of.
Edging out mortgages for eco-poor properties
A report published earlier this year by the Department for Business, Energy and Industrial Strategy has declared that mortgage lenders have a part to play in improving the energy efficiency of the UK’s property stock. One suggestion contained in the report includes tracking and annually disclosing the average Energy Performance Certificate (EPC) rating of the properties banks and building societies lend against.
A league table could then be published that ‘shames’ lenders who persist in granting home loans for poorly rated properties. Another suggestion would involve mortgage lenders factoring in EPC ratings when coming to their approval decisions, with a preference to only loan to those who are buying eco efficient properties.
Both of the ideas may make it harder for purchasers buying poorly rated properties – EPCs that are below an E, for example – to obtain a mortgage. To counteract any such diktat, lenders would also be encouraged to offer extra borrowing to homeowners who need to make green improvements before they sell or remortgage.
Better mortgage rates for better EPCs
Some lenders are already onboard with the eco ethos, offering preferential rates for those whose properties meet a minimum EPC criteria – Natwest and Barclays included – while Kensington rewards borrowers who improve an EPC rating after purchase. Landlords aren’t being left out either, with Paragon Bank and Foundation Home Loans using July 2021 to launch new green buy-to-let products for landlords purchasing properties with an EPC rating of A, B or C,
The finance industry is now waiting for the Government to publish its response to the report later this year but it is widely expected to agree with proposals in order to meet its ambitious target of being a net zero carbon nation by 2050. Ministers have already publicly stated that they want as many homes as possible to have an EPC rating of C by 2035, although the Climate Change Committee has suggested this date be brought forward to 2028.
Are there minimum EPC standards now?
That depended on whether you’re an owner-occupier or landlord. If you live in your own property, you can sell up whatever your EPC rating but buyers are starting to be discerning on the matter of energy efficiency. It is worth bearing in mind that it is a legal requirement to have a valid EPC certificate and the rating must be displayed within any property listing, so purchasers may be put off if a property is inefficient.
Properties that are offered for private rent fall into a different category and the Government is already using the lettings sector to improve residential energy standards. Currently all rental properties (not just new tenancies) must have a rating of E or higher to be legally compliant but the Government’s published target is to raise the minimum EPC for all privately rented homes to Band C. This would apply to new tenancies from 2025 and all tenancies from 2028.
If you would like advice on improving your home’s energy efficiency, have an expiring EPC certificate that needs renewing, or have a home to sell with an amazing energy rating, contact the Behr & Butchoff team today.