The government is encouraging lenders to innovate in the green finance market so homeowners and landlords can reduce their carbon emissions and lower their energy bills.
The objective is to provide households with more choice of affordable finance options to retrofit Britain’s inefficient housing stock as part of the commitment to meet ambitious EPC targets of ‘C’ or above by 2025 for landlords, and 2035 for owner occupiers. A move which will reduce both emissions and energy bills.
This initiative is part of broader efforts to meet Net Zero by 2050, and follows an earlier announcement that the government has allocated £4 billion to grants for the installation of low carbon heating systems.
Propp’s Managing Director, Paul Elliott called for this type of government intervention in a discussion around green home loan innovation with Mortgage Solutions almost a year ago, so it’s reassuring to see sensible steps being taken in the right direction.
Paul said “green mortgage innovation can be achieved if the government gave lenders access to cheaper funds that they could loan to borrowers to upgrade inefficient homes, citing that a scheme similar to the Funding for Lending initiative could work.
However, he noted that government support alone isn’t sufficient to ensure the private rental sector meets the EPC deadline, and that cash from banks and collaboration within the private sector is crucial.
The UK’s housing stock is made up of some of the oldest and draughtiest homes in Europe, and some properties require enormous amounts of work to get to a ‘C’ rating.
Chris Norris, of the NRLA said that “The kind of deep retrofit that many properties will require ranges from solid wall insulation (est £8k-15k), to solar PV (est. £5,000 for a typical house), or air source heat pump installation (typically £7-£18k).
The investment required in our housing stock represents a burden for many landlords that they are highly unlikely to be able to shoulder alone, without significant changes to the tax system and some form of financial assistance along the way”.
While we should applaud this government support, realistically £20m isn’t going to go very far. Not when two thirds of the UK’s private housing stock is falling short of the EPC targets.
However, the specialist property finance industry is excellent at tackling difficult problems head on and we’re quietly confident that a few genuinely innovative products will emerge. We’re keeping a close eye on lenders such as Shawbrook and MS Lending who are currently leading the industry by example when it comes to commitment to the EPC challenges.
What can landlords do about their EPC shortfall?
You should not rely on the promise of further government support, especially given the black hole in the government’s budget due to the mini-budget.
We will be keeping a close eye on what finance innovations come from the governments EPC innovation fund for lenders, and will steer you towards the best product for you.
In the meantime, you should check the EPC register to learn your current rating. It will also tell you the potential rating your home can reach and what work it recommends you undertake to get there.
A 2nd charge bridging loan or a refurbishment bridge may be a suitable option for landlords who need short-term funding and don’t want to tie themselves into any long term finance agreements.
You can compare the cost of such options here at https://propp.io/bridging-loans/.
When considering future investments, landlords should make the EPC rating of any further investments a key factor in purchasing decisions.
Abbie Dickson-Davies
