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Politicians can set the scene for greener housing

Although the green emissions of politicians are little more than posturing at the moment, brokers must be aware of the eco-friendly mortgage options as their clients are increasingly likely to demand them, says Harvey Jones

Politicians are fighting to woo voters with a host of green policy initiatives from aviation taxes to offshore wind farms, and housing is a key battleground.

Last December, chancellor Gordon Brown tried to boost his dubious green credentials by pledging to exempt new homes from Stamp Duty for an unspecified period, provided they have carbon-neutral ratings. He also announced a plan to ensure that all new UK housing is carbon-neutral within the next 10 years.

He confirmed his commitment in the Budget last week, announcing that all new carbon-free homes worth up to £500,000 will be exempt from Stamp Duty from October. But reactions have been mixed.

Adrian Coles, director-general of the Building Societies Association, stood almost alone in praising the chancellor for “throwing down the gauntlet to lenders”.

“By explicitly linking carbonneutral homes to the Stamp Duty regime, Brown has provided an incentive to build greener homes,” he says. “This is something societies will be examining carefully.”

But most other commentators awarded the chancellor’s zero carbon idea a big fat zero. David Stubbs, senior economist at the Royal Institution for Chartered Surveyors, condemned the time-limited Stamp Duty exemption for new-build homes as a limited ambition.

“New-build accounts for 0.8% of the housing stock – a pittance compared with the existing stock of 25 million properties which mostly remain carbon-inefficient,” he says. “What does Brown intend to do about that?”

Stubbs also points out that there was no financial incentive to purchase carbon-neutral homes below the Stamp Duty threshold of £125,000.

“Until the government stops making these pitiful attempts to convince the public that it is committed to tackling climate change we will never reach our targets to reduce carbon emissions,” he says.

So what is a carbon-neutral home? Traditionally, the electricity that runs your lights, TV, fridge, coffee grinder and mobile phone recharger has been generated by burning fossil fuels. Unfortunately, these fuels also generate carbon dioxide, sulphur dioxide and oxides of nitrogen, which could cook us all to death by around 2050, depending on who you believe.

Housing is one of the biggest culprits in global warming, responsible for 27% of the UK’s carbon emissions. It must do its bit to save the planet.

Carbon-neutral homes of the future will be bristling with energy-saving or generating devices including solar panels, wind turbines, wood pellet burners, triple-glazing, underfloor heating systems, thick wads of insulation and heat pumps tapping into all that unused geothermal energy sitting below the ground.

That way, homes won’t have to draw any power from the National Grid and may even be able to sell back any surplus they generate from turbines. They could be less than energy-neutral.

So does this futuristic home exist? Well, there’s a development in south London called BedZed, created by the Peabody Trust Housing Association, but its 82 homes have struggled to hit the magic carbon target. Meanwhile, there’s a £140,000 house in St Albans with wind turbines and a grassy roof. Some have called it Britain’s greenest house but again, that carbon-neutral target remains unmet.

Peter Armfield, technical director of Linden Homes, says making all new homes carbon-neutral in just 10 years is a monumental challenge for house builders and only possible with considerable investment in technology.

“Existing technology could cost as much as £20,000 to achieve a carbon-neutral home – there needs to be a cost-effective solution,” he says.

Armfield proudly claims his company’s homes are 40% more energy efficient than regulations require but they still need to be 145% more efficient to meet the new challenge.

“It’s essential the government assists with research into carbonneutral technology to achieve this transformation of new homes by 2016,” he says.

Philip Sellwood, chief executive of the Energy Saving Trust, puts the cost of creating a carbon-neutral home at an even pricier £35,000 but predicts the cost will tumble as renewable technologies become the norm, just as mobile phone and computer prices have fallen.

But for every eco-optimist there are 20 pessimists, with Alan Cleary, managing director of edeus, casting a gloomy eye over the chancellor’s prospects for success.

He says removing Stamp Duty for carbon-neutral new-builds is a drop in the UK’s housing ocean.

“Less than 1% of housing stock is new-build,” he says. And right now there are just six carbon-neutral homes in the UK.” Soaring house prices may alsothwart the green revolution, with the Council of Mortgage Lenders recently noting that property is already unaffordable for many, even before expensive energy-saving technologies are installed.

Brokers are similarly sceptical. Two-thirds believe the UK will fail in its target to make all new homes carbon-neutral by 2016 according to a recent survey carried out by UCB Homeloans.

Jonathan Cornell, technical director at Hamptons Mortgages, says buyers will only start looking for green properties once they become cheaper than buying standard homes.

“The only way I can see of achieving this would be to substantially increase the Council Tax for non-carbon-neutral houses,” he says.

This isn’t the government’s first attempt to chase friendly headlines with green housing initiatives. They appear with every Budget.

In March 2006, Brown devoted £75m to pay for green measures to be delivered by government agencies and the private sector such as low energy light bulbs, better insulation and improved central heating.

As part of the recent Labour-Tory round of green posturing, the chancellor promised grants would be available to have every home insulated in the next 10 years. He also wants to remove standby functions from TVs and DVD players that use electricity when they are left on.

There is a thin smattering of tax breaks presently in place to help green builders, including a 5% VAT rate on heat pump installation.

Ian Cook, head of strategy at Ekins, surveyors for Barclays and Woolwich, says the government also hopes to enforce the move towards carbonneutral housing by tightening building regulations through its Code for Sustainable Homes and a forthcoming planning policy statement on the subject of climate change.

“Early experiments have been in the South-East, with a lot of focus on the planned Thames Gateway developments,” says Cook.

So, can brokers and lenders do their bit? Encouragingly, a recent UCB survey showed that six out of 10 intermediaries said the profession could do more to help reduce carbon emissions while just over half had already taken measures on green issues within their own businesses.

But aside from switching to low energy fluorescent lightbulbs, what practical steps can the industry take?

The government has been encouraging lenders to produce green mortgages to offer home owners loans to fund energy improvements recommended in the forthcoming Energy Performance Certificates, to be included in Home Information Packs from June.

But for now, green mortgages remain a niche dominated by three ethical stalwarts, Norwich and Peterborough, Co-operative Bank and Ecology.

N&P launched its first green mortgage in 1998, followed by its first carbon-neutral mortgage two years later. Its green mortgage is only available to energy-efficient new homes or home owners looking to make their existing homes more efficient.

For every customer who takes out a green mortgage, the society plants 40 trees – eight a year for five years. That’s enough to soak up 40 tonnes of carbon.

Co-operative Bank has been offering green mortgages since 2000. Its Eco Mortgage “neutralises” one-fifth of the carbon dioxide generated by its customers’ homes by making a payment to carbon offsetting charity Climate Care.

Ecology offers mortgages to help bring old or derelict properties back into use and reduce the pressure for new housing.

And, as Mortgage Strategy Online reported on March 21, HBOS and Abbey are in the throes of developing their own contributions to the green mortgage space, with many more lenders likely to follow suit in time.

“We don’t offer a green mortgage although we do offer customers the ability to take a further advance on their mortgage which can be used to make home improvements that increase energy efficiency,” says an Abbey spokesman.

Nationwide doesn’t offer green mortgages either, although it does encourage its borrowers to be green while its specialist subsidiary UCB is planning a consumer booklet on ways to save energy.

Nick Gardner, director of Chase de Vere Mortgage Management, says home owners’ green home loans fail the test of offering value for money.

“Co-operative Bank may offer customers a free energy report and a

charitable donation but as is usually the case with gimmicky mortgages, it isn’t among the most competitive on the market,” he says.

The bank’s 5.89%, three-year fixed deal compares with market-leading rates of around 5.4%.

“For example, Portman offers a three-year fix at 5.39% with a £599 fee and no higher lending charge,” says Gardner. “That would save a borrower with a standard £150,000 mortgage around £45 a month or £1,623 over three years compared with the Co-op.”

Borrowers would be far better off taking a cheaper loan and donating the difference to charity. Gardner names Ecology as the best green lender.

“It isn’t the cheapest but it fills a niche by lending on properties most other lenders wouldn’t touch,” he says.

Melanie Bien, director at Savills Private Finance, says green mortgages don’t just fall down on rates, they also fail on flexibility.

“Most borrowers are concerned with getting a low rate or a high LTV or both so unless a client specifically asks for a green mortgage, brokers are unlikely to sell them,” she says.

That could change if more lenders enter the green mortgage arena, forcing rates down.

“It would be nice to reach the point whereby we can offer green mortgages even if a client hasn’t requested them,” says Bien.

Jackie Bennett, head of policy at the CML, says another problem facing the industry is that there is no standard definition of a green mortgage.

Until then, measures such as Council Tax rebates for energy-saving measures and readily available EPCs at all points of home ownership are much more likely to encourage home owners to take action.

Jack Saxton, managing director of Halifax Intermediaries, points out that from June, EPCs must be produced for each of the one million annual property transactions and this will gradually make buyers and sellers more aware of energy issues.

“Buyers may start to choose homes on the basis of energy-efficiency while sellers may upgrade properties to boost their energy ratings,” she says.

“New homes may also be viewed more favourably as they tend to be more efficient.”

Nicola Severn, marketing manager at Beacon Home Loans, agrees that EPCs will help encourage efficiency measures in existing properties and greener new homes, but says the market needs the government to deliver on its raft of proposed energy-saving initiatives.

“Housing minister Yvette Cooper has indicated that customers who rehabilitate old, inefficient homes could be rewarded,” Severn says. “If these incentives come to fruition, green issues will become more important and those struggling to get on the housing ladder may take advantage.”

Every broker should at least be aware of green mortgage options.

“Some lenders specialise in mortgages for renovating derelict and dilapidated property,” adds Severn”Most high street lenders avoid this area so brokers who can organise fin-ance on what could have been unmortgageable properties will be adding value for their clients.”

If green mortgages become mainstream, brokers should also be encouraged to top-up their knowledge.

“A module on green mortgages could be built into the qualifications all brokers need to attain,” Severn adds.

Rob Griffiths, associate director at the Association of Mortgage Intermediaries, thinks that is only a remote possibility.

“If the Financial Services Authority thought green mortgages were notably different from standard deals it might decide they merit a separate module but I don’t think that’s likely,” he says.

It shouldn’t be forgotten that energy-efficient properties could still deliver one big and relatively straightforward saving – through utility bills. The average home energy bill has doubled to more than £1,000 in three years.

Those are the kind of hard, financial facts that might persuade home owners to start curbing their energy use. Until then, the hot air emitted by politicians plus a spot of tree planting by do-gooder lenders is more about securing headlines than cooling the planet. •

Carbon-neutrality is becoming a buzz word
Jenny Irwin is marketing manager at Ecology

We specialise in lending on properties that benefit the environment in some way. Our main lending areas are:

• Run-down, derelict dwellings that require substantial renovation work to make them habitable again. This is a form of recycling – reusing existing buildings and resources.

• Disused, neglected properties that can be converted into usable buildings, for example, old barns, former water towers, lighthouses and chapels.

• New but ecologically-built homes using sustainable, natural materials and incorporating high levels of renewable energy.

• The installation of energy-saving measures and renewable energy systems to existing properties to increase their energy-efficiency.

We recently introduced our C-Change mortgage discount which we believe to be the UK’s first and only mortgage product to directly encourage take-up of carbon-saving technology. As homes account for over 25% of the UK’s carbon emissions, our mortgage discount rewards borrowers with a 1% discount off our SVR on funds used to improve their homes’ efficiency. This may be by the installation of energy-saving measures such as insulation, double or triple timber-framed glazing or renewable energy micro-generation via technologies such as solar panels, wind turbines or wood-fuelled heating.

Awareness of climate change is growing as media coverage and political debate increases. Carbon-neutrality and green mortgages are becoming buzz words but not everyone is agreed on their meanings. Carbon offsetting is a contentious issue as it is a reactive measure, compensating for carbon emissions instead of preventing the production of carbon dioxide in the first place. Our mortgages are green as they are provided by an ethical society and are only available for properties that can demonstrate a positive environmental benefit.

The government has become increasingly keen to promote energy-efficiency in homes and called for more green mortgage products. We hope its voluntary code for sustainable homes encourages people to improve the efficiency of their homes but in our view more fiscal incentives and grants are needed.

Perhaps tax relief on energy savings and micro-generation products, Council Tax rebates based on homes’ energy ratings, further Stamp Duty reductions and reducing planning restrictions on the installation of renewable technologies such as wind turbines would incentivise home owners to improve their homes’ efficiency.

The government’s Low Carbon Buildings programme is also important in helping home owners finance energy improvements. However, the current administration and distribution of these grants is restrictive and cumbersome and funding levels are inadequate.

EPCs will mean savings in money and energy
Paul Broadhead is deputy director-general at the Association of Home Information Pack Providers

We are all becoming far more aware of the impact our lifestyles and homes are having on the environment.

In the chancellor’s pre-Budget report in December we heard of the government’s plans for carbon-neutral homes and its somewhat ambitious commitment to ensure that all new homes are carbon-neutral within a decade.

While this commitment is admirable and will go some way towards reducing carbon emissions in the longer term, I believe it is in the existing housing stock where the biggest impact can be made. It is here that the introduction of energy performance certificates – a key element of Home Information Packs – can make a positive impact on the energy efficiency of our homes.

In 2050, around 80% of the present housing stock will still exist. Giving purchasers information about a property’s energy efficiency at the point of offer will encourage home owners to take steps to increase the energy performance of their homes.

As of June 1, Energy Performance Certificates will be produced for each home that goes on the market, providing every home with an energy rating along with advice on how to reduce emissions and cut energy costs.

Research carried out by our members suggests that even if only 10% of consumers opt to follow the energy-saving guidelines contained in the packs, carbon emissions could be reduced significantly.

The introduction of EPCs will provide home buyers with comprehensive reports on the cost of running their new homes – information that until now has not been readily available. The certificates, along with additional incentives suggested by the chancellor such as a Stamp Duty rebate for those buying carbon-neutral homes or Council Tax reductions for those carrying out energy improvements, should help to increase consumer awareness and encourage home owners to make a number of adjustments that will lead to savings in monetary and energy terms. We now need to see these recommendations become reality.

Around 27% of the country’s carbon emissions come from residential property. The introduction of EPCs will offer an opportunity to tackle this figure and could be a catalyst in reducing carbon emissions.

While the European directive that lies behind EPCs states that by 2009 every home that goes on the market will be required to have one, HIPs will ensure that they are introduced this year in the UK – that’s two years ahead of schedule meaning two additional years’ cost and energy savings.

Blair should stick a wind turbine on his roof
Alison Rolls is head of communications at Norwich and Peterborough

Last year’s famous Stern report was the final straw in consolidating public opinion on green issues. The environment is now a regular topic in pubs across the land. Whether it’s French pistes or polar bears they don’t want to disappear, most people have a view on what global warming will mean to them. Undoubtedly for many it will mean the flooding of their homes, the distress of clearing up afterwards and the shock of rocketing insurance premiums or worse, finding that their homes are uninsurable.

Now that climate change is pretty much accepted, the next big step is getting individuals to take personal responsibility. One of the biggest opportunities we have is to convince home buyers and home owners that they should do all that they can afford to improve the energy-efficiency of their homes.

When buying homes, new owners often plan changes or improvements. They take out mortgages and plan to live in the property for a while after moving in. The buying transaction is therefore a good opportunity to inform owners of how they can make energy-efficiency improvements and thereafter enjoy lower utility bills. While doing this, why not go the whole hog and advise them to take out green mortgages too?

There are about 1.4 million property transactions in the UK each year. If every transaction resulted in a green mortgage being taken and energy-efficiency improvements being made, this would have a positive impact on the energy performance of housing and on carbon emissions.

Only three financial institutions presently provide mortgages to UK home buyers which have a connection with the promotion of sustainable energy use. And interest among home buyers is low, with the majority generally not interested in the energy performance of their next home. As we all know, it’s mainly about location, location, location. Is the house near a good school? Cash-strapped home buyers are not looking for environmental solutions in their mortgage products.

So what can be done to influence buyers? Gordon Brown, take note. Take VAT off all energy-efficient products and use those billions of pounds of Stamp Duty to give local councils funding so that everyone can install solar heating systems and ground source heat pumps.

And Tony Blair, before you quit Number 10, set a good example and stick a wind turbine on the roof to go with the efficient lightbulbs you’ve just installed. Brokers – ask your clients if they realise what can be done to lower the running costs of the property they’re considering buying and offer to arrange the extra finance to fund it. And lenders, introduce green mortgage products and review your carbon footprint. Go carbon-neutral as soon as you can.

Remember the words of Edmund Burke in 1783: “Nobody made a greater mistake than he who did nothing because he could only do a little.”


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