Santander and Octopus challenge affordability with zero-bills mortgage

The way lenders calculate mortgage affordability has not kept pace with a new generation of homes that cost nothing to run, and Santander UK is the first major high street bank to do something about it.

In July, Santander and Octopus Energy launched a zero-bills mortgage that removes guaranteed household energy costs from affordability calculations for buyers of Octopus Zero Bills homes – new-build properties fitted with solar panels, battery storage and a heat pump, with no home energy bills for at least 10 years. Eligible buyers can borrow up to £30,000 more than they would under a standard affordability assessment, depending on property size and mortgage term.

For Michael Taylor (pictured top right), homes propositions lead at Santander, the logic is straightforward. "Energy bills are such a material amount in a household's expenditure," he told Mortgage Introducer. "Where lenders can, we should be looking to accurately reflect that in our mortgage affordability assessments."

Nigel Banks (pictured top left), zero bills director at Octopus Energy, told Mortgage Introducer the case for change has been building for years. "It's a genuine situation where it's a product that works for the end customer, it can work for the housebuilder, and it can work for the mortgage lender and the energy company," he said. "There has to be a better outcome for each of the different parties."

The case against a one-size-fits-all model

Banks pointed to a structural flaw in how the market has used Energy Performance Certificates (EPCs) as a proxy for energy costs. Research by Octopus with the Home Builders Federation (HBF), published in the HBF's Watt a Save report in 2025, found that EPC A or B rated homes typically achieve bills only 10–20% lower than average. Technologies such as battery storage and smart tariffs – which can eliminate the bill entirely – are not captured in the current EPC framework.

"That changes the economics much more significantly," Banks said. "And because we can guarantee it's zero up to a fair use limit, that gives Santander real confidence."

Taylor said the barriers holding other lenders back are largely internal. Changes to affordability assessment require systems development, process sign-off, and competition for prioritisation within large organisations. Many lenders, he suggested, are timing their moves for 2028, when the Future Homes Standard (FHS) fully takes effect, rather than acting now.

"Lenders will probably be readying themselves, but maybe with a little bit of a further-out timeline," Taylor said. "We've just spotted the opportunity."

The FHS requires all new homes in England to be built with heat pumps and solar panels as standard. Confirmed in March this year to apply from March 2027, with a transition period through to March 2028, it has been a significant factor in the slow supply of eligible homes. Banks explained that most major housebuilders were still constructing gas-heated homes when Zero Bills launched, because grid connections and site specifications were not designed for heat pumps from the outset.

"For most of the major housebuilders, they were building 90% of their homes with gas on sites that were live," Banks said. "That seriously restricted the available sites that could easily upgrade to a zero-bills specification."

Banks added that the underlying economics have also only recently made the proposition viable at scale. Solar panel and battery costs have roughly halved in three years and stand at around a tenth of what they were a decade ago. "It has flipped from being too expensive to now being financially viable, and the savings are real," he said. As the green mortgage market has expanded in recent years, more lenders have begun treating energy performance as material to affordability, but Banks argued the industry has not yet gone nearly far enough.

What brokers need to know

Santander has deliberately structured this as a named, branded proposition so that brokers have clarity before placing cases. Taylor said advisers should understand that the affordability uplift exists specifically for marginal cases. Not every buyer of a Zero Bills home will need it, but for those who do, it can be decisive.

"That adjustment to the affordability assessment, that accurately reflects the real monthly outgoings, can be the difference between the buyer being able to afford the home and not," he said. "It can be a real dealmaker."

Banks said the affordability improvement matters most where price sensitivity is sharpest. "If that energy bill being zero means there's £20,000 more affordability, that can more than match a cost of say £10,000 extra to build to zero-bills specification," he said. "Buying a zero-bills home may actually be more affordable than buying a standard new-build home with the new Santander mortgage product."

With energy bills representing the second or third largest household outgoing after mortgage payments and car finance, Taylor argued that protection from energy price volatility is as important as the monthly saving itself. "It's not just about saving money," he said. "It's that peace of mind."

The proposition extends beyond new build. Taylor described a pilot in which Octopus engineers retrofitted a 1980s four-bedroom family home owned by an existing Santander customer in Milton Keynes to zero-bills standard in a single working week. Banks said the retrofit potential is significant, with an estimated 500,000 UK properties built since 2013 potentially eligible for upgrade. As products such as Nationwide's 0% green additional borrowing for energy-efficient home improvements demonstrate, lenders are increasingly looking at both new build and existing stock.

A valuation premium on the horizon

Banks flagged that EPC reform is coming, with a smart readiness indicator and half-hourly tariff analysis set to be incorporated into the rating system within the next year or so. He also raised the possibility that future affordability models could extend to transport costs, with smart-charged electric vehicles costing between an eighth and a tenth of the equivalent petrol or diesel running costs. "The shift we've seen in the last five years means the economics have really flipped," he said. "What is the right environmental solution is now the right economic solution."

Santander's own research found that 8% of UK adults cite reducing energy bills as their main motivation for home improvements. Taylor said that as awareness builds, Zero Bills homes should begin to command a price premium over standard properties but acknowledged the market is not there yet. "Once you get enough households recognising the strong benefits, that should start to be reflected in a Zero Bills home achieving a premium versus a standard home," he said.

Virtually all of the UK's top 10 housebuilders have now trialled Zero Bills homes or are on site doing so, and build-to-rent funds are increasingly adopting the standard alongside owner-occupier developments. Octopus is targeting 100,000 Zero Bills homes in the UK by 2030 and has expanded the programme to France, Germany and New Zealand.

For Taylor, the product represents a rare opportunity in a sector that more often deals in regulatory compliance and the obsolescence of ageing platforms. "To get to do something where you work across industry and make a real difference to customers is about as exciting as working in financial services can get."

Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.