Making Mortgages Energy Efficient?

Researching the accreditation of financial products that promote domestic sustainable energy use

This project involved scoping research into the accreditation of financial products that promote domestic sustainable energy use in the expectation that the introduction in 2007 of the mandatory Home Condition Report may raise interest amongst home buyers in making home energy improvements. The specific aims were to:

Provide guidance as to the viability of such an accreditation scheme, including practical recommendations on the potential scope, targeting, delivery and costs of such a scheme.
Gather and present relevant background information to inform decision making on the potential design and implementation of such a scheme, including information on market conditions patterns of consumer behaviour and existing provisions for ëgreení financial products and any endorsement thereof.

During the course of the study, it became clear that an accreditation scheme was not the most appropriate next step in developing a market for mortgages to promote sustainable energy. A wider assessment of the market was therefore undertaken to identify a range of initiatives which could help give sustainable energy in the home-buying and mortgage markets.

The study was undertaken by carrying out the following tasks:

Conduct a desk based review of the current home purchase and finance market to build a basic picture of home lending patterns and also draw out relevant trends that have resulted from the growth in general of ethical financial products
A rigorous assessment of all existing UK products which promote sustainable energy use in the home ñ via desk analysis and semi-structured interviews with industry providers - to help categorise products, compare different approaches, and predict what new products or market changes are likely to result from the mandatory introduction of the Home Condition Report (HCR)
Development of proposals to develop a market for sustainable energy financing products including:
- A review of the way that green mortgages and associated accreditation schemes work overseas and their applicability and potential value to the UK
- Analysis of current mortgage provider perspectives and home-buyer attitudes to sustainable energy within the home-buying process
- The development of practical, realistic proposals to improve the standing of sustainable energy in the home-buying process in the UK

The study identified that, while three mortgage providers do offer products which promote sustainable energy, there is no evidence that a wider market for such products yet exists amongst the larger mortgage providers or the majority of home-buyers. The study's authors concluded that the market is not yet ready for an accreditation scheme.

In the light of this, the study looked more widely at the UK housing market and explored how the financing of home buying could combine with other efforts to give energy efficiency a higher profile. It analysed experience overseas and outlined some basic conditions that a mortgage which promoted sustainable energy might need to meet to engage home buyers.

The research showed that home-buyers are indifferent to, and the mortgage market largely unconvinced by, the commercial potential of promoting sustainable energy use in their products. Changing this will require concerted effort to tackle this consumer indifference and to bring to the market competitively priced mainstream mortgage products which make it simple and enticing for the home-buyer to take action to improve sustainable energy use.

This approach gives rise to a 'six-point plan' as recommendations to the Energy Efficiency Partnership for Homes to:

Raise the profile of energy efficiency much more significantly within the Home Condition Report (HCR) (and in the Home Information Pack more generally)
Ensure the communication of energy efficiency advice in the HCR is potent and motivating
Outline the basic building blocks of mortgage products which would promote sustainable energy use
Develop a programme of support which entices major mortgage providers to test the market with a high profile pilot in conjunction with the Energy Saving Trust or some other agency which provides 'accreditation by association'
Look at the potential for involving energy suppliers in the delivery of energy saving measures (with explicit explanation of their energy saving obligations)
Identify and pursue further policy measures (eg changes to stamp duty, focus on energy performance in regulations governing the provision of mortgage advice) which could create further motivation and incentives to improve energy efficiency in the newly-purchased home.

No single measure in this six-point-plan is likely to achieve a 'breakthrough'. Improving the HCR is unlikely to secure action unless the opportunities exist (prominently) to borrow the cost of energy saving measures and organise their installation. But such opportunities to borrow are unlikely to emerge without significant action to stimulate home-buyer interest and raise the priority of energy efficiency within their home improvement plans.

However, in combination these six measures could begin to realise the opportunity to improve energy efficiency that currently lies dormant in the majority of the 1.4 million home purchase transactions which take place every year in the UK.

< Back to projects

Making Mortgages Energy Efficient?