Tightening up the definition of green mortgages

Headlines:

1. First time buyers are likely to be younger and more open to the need to act for the environment, so these can be targeted.
2. We can learn from the success of workplace pensions and make the offers simpler and have them as a default (so an opt out rather than an opt in)
3. There is a need to improve housing stock overall, not just new housing or for new mortgages. We have a long way to go with only 46% of housing have C or above on EPC rating.
4. When it comes to those who have paid off their mortgage these consumers are more likely to have the money to do this, but how do we reach them to offer finance to do so?

Discussion points:

Do consumers really care about green mortgages or know how to become ‘greener’? The consensus was that only a minority of consumers proactively care about a mortgage being ‘green’ and most don’t understand what this might even mean.

One participant shared that there have been less than 100 web searches for green mortgages this month. Consumers choose their property from the photo; finance is a step further down the line. Another explained that consumers rarely know the EPC rating of their home now.

There are 2 ways that this could become more important/popular:

1. To make a green mortgage something to show off or shout about, or as one participant put it, ‘turning it from a Prius into a Tesla’! We need to give them something to be proud of – explain what they are doing for the environment by having a green mortgage
2. To save them money or give them financial rewards – many of the products on the market are doing this.

On the other hand, should this be about green mortgages at all, but about green home ownership? We should stop calling them green mortgage products, have the conversation with the consumers about their home being greener, the products will then follow. We need to take a step back before going forwards. We need demand to grow first and then meet this with supply.

Whose responsibility is it to build awareness and understanding? It was agreed that it is the responsibility of all stakeholders in the process to build awareness and understanding. This includes brokers and lenders, the government, regulators, industry bodies and the media.

Parallels were drawn to investments where 8 in 10 consumers may want their investments to do good, but only 2 in 10 advisers mention it proactively.

We all need to promote the products and the greening of homes - bringing together the two themes of pride in their actions and financial incentives - talk about the benefits to them and to the environment.

Consumers don’t know what they can do practically to ‘green’ their home so we should ‘encourage the small wins’ and incentivise these through our products (such as £50 cashback given only as ‘vouchers’ to spend on insulating the loft or other relevant activities) as well as through advertising.

Brokers rarely have conversations with their customers about the energy efficiency of their property and running costs of owning a home, so this needs to become more widespread with brokers providing guidance.

Brokers need education too, so the networks and the providers have a role to play in these conversations. We must collectively help consumers understand the value.

But the government also has a role; a brainstorm came up with a number of ideas including tax breaks for green homes such as discounts on council tax or reduced stamp duty or adding to the rates for homes with non-EPC standards. More radical legislation as well as new ideas are needed for the industry to move forward as one.

And of course, education needs to start in school; all agreed that young people are already open to environmental issues so already have a ‘green base’ to build in understanding mortgages, home ownership and the role of the home in carbon emissions.

What are the priorities for lenders and brokers now and in the future? And how can we meet the scope 3 emission targets?

Lenders and brokers need to work together to have well thought-out customer journeys to lead the consumer to the table and deliver products that suit all. We need to grow demand and supply in parallel – encouraging consumers to meet the EPC rating targets whilst lenders meet their own company ESG targets for their brand

A popular idea was rather than have green lending products as an alternative, we should be building the principles into the core mortgage products. We should not be thinking short-term but longer-term to ensure that we are sustainable (in both senses of the word – environmentally and financially).

One participant lender explained that their organisation’s focus is to improve quality of their back book, which includes borrowers who are not buying homes or re-mortgaging so this needs to be tackled too.

Another shared that their organisation has offered thousands of free EPC assessments to their customers but only one household has taken up the service to refit their home following this.

Key takeaways:

The following next steps are now needed:

• Incentives are required from the government to drive consumers to want to make their home ‘green’ – the mortgage industry cannot do this alone
• Industry wide consensus on the best way to change mindsets
• Long term policy environment to enable mortgage lenders to forward plan to best serve their customers with the need for clarity at a policy level to help inform lending sector with strategy setting