Lack of understanding is holding green home loan market back
Green home loans remain a little-understood corner of the Australian mortgage market, with only a handful of smaller banks and non-bank lenders aggressively marketing their products.
But for aspiring homeowners, green home loans have the potential to shave thousands off their interest repayments while contributing towards a low-emission, electrified future.
Brokers, meanwhile, can play a pivotal role in empowering clients with the tools to take advantage of the available options.
Speaking to the experts, however, it becomes clear that the complexities and lack of available knowledge is holding the market back.
Is Australia behind the curve on green loans?
28Watt is a startup trying to simplify the confusing world of home electrification. The online platform is tailored to homeowners wanting to get their heads around the financial benefits of solar panels, batteries, heat pumps, reverse-cycle air conditioning and other sustainable home additions.
“It is currently really difficult for homeowners to understand the ROI (return on investment) of doing these things to their property,” 28Watt’s co-founder and chief of operations Jake Havey told MPA.
Compounding the issue is that it’s incredibly difficult to know what constitutes a ‘green’ home under the applicable regulations- something 28Watt hopes to fix.
Hailing from the progressive wonderland that is The Netherlands, 28Watt’s co-founder Robin Stam has seen first-hand how far behind the curve Australia can be in incentivising home electrification.
According to Stam, every major bank operating in The Netherlands applies a discount to green home loans, sometimes up to 40 basis points off a standard contract.
Similar products are few and far between among the Aussie majors, leaving the challengers to pick up the slack.
Bank Australia, for instance, offers up to 70 basis points off a standard mortgage for homes that meet relevant sustainability standards. Stam agrees that this is a “phenomenal rate” that trumps the Dutch average.
The likes of Gateway Bank and FirstMac are also among the handful of non-majors with popular green home loans on offer.
Stam, however, is cautiously optimistic that more green home loans could come to market down the line. “We always say looking at The Netherlands is like looking into the future,” he stated.
But the supply of green home loans will only start to gather pace once the majors see sufficient demand on the borrower side. Luckily, Stam is “100%” seeing this happen.
Each of the big four lenders currently offers sustainability loans to homeowners seeking to make energy-efficient upgrades to their existing homes.
These sustainability loans generally offer decent rates (4.49% yearly, capped at $50,000, in WestPac’s case), but they’re small compared to the saving potential of a fully-fledged green home loan.
The big banks are also making aggressive commitments to hitting Scope 3 emissions targets in their residential mortgage portfolios, especially since mandatory climate reporting requirements for big businesses came into effect from the start of this year.
“The easiest way for (the banks) to reduce emissions is provide cheap capital, but also provide tools to their customer base to show them, okay, what can I actually do to my home to reduce my emissions,” said Stam.
Boosting knowledge of green loans
Having met with dozens of brokers in the past year, 28Watt discovered that many lack basic knowledge of the eligibility requirements for green finance and thus are unable to have a proper conversation with their clients, “so they skip the green loans and then go to the best rate after that”.
Brokers with the knowledge will therefore find themselves with a competitive advantage.
“They may also find that consumers making buying decisions, factoring in the environment and the impacts of lenders, are more loyal when they are provided a good solution,” said Zeb Drummond, chief operating officer at Gateway Bank.
Around 6% of loans written at Gateway Bank are made up of green finance such as its 5.85% Green Plus Home Loan, which offers a 25-basis-point discount off a standard loan.
“Green home loans absolutely have a place in the Australian market,” stated Drummond, although “it’s early days for green loans and the market is only just starting to react”.
More to do on green loans
“As a customer-owned bank, we know our customer’s number one concern is climate action,” said John Yardley, deputy chief executive of Bank Australia.
Bank Australia has seen increasing demand for its Clean Energy Home Loan, with the portfolio growing by 14% in the last financial year.
The product offers a discount for the first five years of a loan which Yardley says can potentially save homebuyers around $24,500 in interest payments on a $500,000 loan balance over a 30-year loan term.
“We know consumers are thinking of getting off gas when renovating or building a new home. By brokers knowing about green home loan options, they can provide strong, competitive rates to borrowers,” Yardley added.
The government-owned Clean Energy Finance Corporation’s (CEFC) $1 billion Energy Upgrades Fund is helping to steer interest in green home loans, noted Yardley, but there is more to do from a regulatory and incentives perspective.
Rolling out Nationwide House Energy Rating Scheme (NatHERS) ratings for all Australian homes will help, he said, as will the introduction of energy-rating disclosure at the point of sale or lease.
