Mortgage Promotions: Green pastures for the reaping

So it looks like the UK is about to embark on a drive to go green. This upsurge in environmental thinking has been partly encouraged by the present trend among politicians who have attempted to demonstrate that their ‘green credentials’ are more robust than those of their competitors. But sometimes such desires and proposed policies can cloud the real issues.

The most dramatic of these bids was the recent Budget announcement by chancellor Gordon Brown that, until 2012, newly-built zero-carbon homes sold for up to 500,000 will be exempt from Stamp Duty. And all those costing more than 500,000 will see a 15,000 reduction in their Stamp Duty bill. This new focus is broadly based on the premise that around 27% of UK emissions of carbon dioxide come from space heating, water heating and cooking in homes.

Then came proposals from communities secretary Ruth Kelly which suggest all new homes in England would have to be carbon neutral by 2016 while the government gets to grips with its target to cut CO2 emissions by at least 60% from the 1990’s level by 2050.

Since the Budget, a number of lenders have announced plans to launch ‘green mortgages’ to capitalise on the predicted interest from consumers. But how feasible is it for consumers to benefit from such a generous-sounding Budget giveaway?

First, the Budget clause applies to ‘newly-built’ homes. So people buying older (less energy efficient) homes who hope to retrofit energy saving devices will not benefit from the perks. The other issue is the difficulty of achieving the holy grail of a zero carbon home. To achieve that status a home has to deliver back to the National Grid as much power as it uses over a year. Unless someone wants to live in a home with no electricity, heating or water this means power generation equipment will have to be installed. Zero carbon homes will have to include technologies such as mini wind turbines, solar panels, ground heat source heating, whole house heat recovery, and rainwater harvesting to provide water for flushing toilets and laundry. They will also have to be insulated to a higher standard, using super-insulated walls and roofs and triple-glazed windows.

It is not going to be easy for lenders and mortgage advisers wanting to benefit from new environmental thinking as consumers will struggle to achieve the required standards. For a start, the few specialist companies able to install such technologies are likely to charge a premium for their solutions. Second, it appears the reverse of economies of scale exist in this sector. In a normal market, you would expect costs to fall as the number of installations increases. But a recent report by the Home Builders Federation suggests that while it is not impossible to build a carbon neutral home, it would be economically unfeasible to apply the technologies to a plot of, say, 200 homes.

It seems if lenders and mortgage advisers want to satisfy consumers’ green needs they will have to consider helping self-builders to build their own homes. Although this might appear to be a micro market, it is growing – self-builders account for around 13% of the new homes built in the UK each year. Self-builders tend to adopt eco-friendly technologies since a desire to live in a more eco-friendly home is often one of the motives behind self-building in the first place.

Intermediaries ought to get involved in this type of business. The most cost-effective form of marketing is to become an expert and let everyone know it. With a growing number of self-builders, local newspaper property editors will be desperate to quote an expert on this subject, on a regular basis. This type of free financial promotion will soon pay off with real increases in business.