Expert discusses trends across the green mortgage space
Despite the urgent need to improve Energy Performance Certificate (EPC) ratings for properties around the UK, one expert said there is still a troubling lack of awareness around green mortgages.
“This means that current uptake is currently far lower than it should be, with many homeowners missing out on extra borrowing power and even lower rates in some cases,” said Martin Leonard (pictured), chief commercial officer at Dashly.
Leonard added that it is a tricky market and with the ongoing battle against seemingly never-ending rate rises, lenders are having to find new, innovative ways to win new customers. As such, Mortgage Introducer has sought to understand the current trends in the green mortgage market and to gain insight into what direction the sector is heading.
Winning over customers
For many lenders, Leonard said they are having to incorporate more ‘green’ into their mortgage offerings. Most green mortgages reward homeowners in some capacity for having an energy efficient home.
“This might be in the form of better borrowing rates, enhanced affordability calculations that reward those who take steps to improve the CO2 emissions in their home, or even products that provide money towards making energy improvements to a property,” he added.
This is particularly useful, Leonard said, for someone buying an older property that requires work to be done to bring up the EPC. Although, despite the benefits, Leonard said existing green products in the market have so far attracted little interest.
“Ever-increasing rates are significantly increasing mortgage payments, couple this with widespread panic at last minute product withdrawals as well as the cost-of-living crisis, and borrowers can be forgiven if improving an energy efficiency rating is not their top priority,” he added.
However, Leonard questioned whether being greener could reduce those mortgage payments or provide much needed cash to help make necessary home improvements. He believes that many homeowners could get onboard with this, but they can only do that if they know the products exist and are aware of the benefits. As an industry, which includes lenders and brokers, Leonard believes everyone must work harder to ensure that homeowners are offered green mortgages as standard.
“Who does not want to be rewarded for taking the right steps with a bit of extra money in their pocket? But unless it is offered as an option, it will not be considered,” added Leonard.
Green mortgage market challenges
There are two key challenges in today’s market, Leonard said - increasing rates and last-minute product withdrawals.
“These have both put the mortgage industry into a bit of a spin; this is not great news for the green agenda, as the focus shifts from consumers looking to do the right things, to self-preservation,” he said.
Moving forward, Leonard said lenders wanting to differentiate themselves are going to be relying heavily on data to gain a deeper insight into a customer’s needs. Using the data, Leonard said, means they can provide product solutions which are more bespoke to their needs.
“This should hopefully show customers the changes are in their best interests long term, both in terms of their assets and their carbon footprint,” he added.
Expectations for 2023
Over the last few months, Leonard said lenders have been working hard to attract new customers and, as a result, he has seen a lot of innovation coming into the market.
“This has mainly been focused on the buy-to-let space as the deadlines for change are much closer, however, I believe that this will continue to evolve and will include more green considerations on the residential side going forward,” he said.
There is an urgent need for lenders to differentiate, and Leonard said this is one key and important way to do so. However, Leonard said the narrative around green mortgages must be changed and consumers need to be aware of the benefits.
“We have turned a corner and homeowners are now acutely aware of the impact that their EPC has on both the climate, and their monthly bills, so lenders have the opportunity to capitalise on this right now,” he said.
What trends have you seen in the green mortgage market? Let us know in the comment section below.
