Green mortgages key to net zero targets: FCA


Green mortgages have a growing role to play in decarbonising the UK’s housing stock, according to the FCA’s director of retail banking.

In a speech delivered at the London Institute of Banking & Finance mortgage conference, David Geale said every part of the housing value chain has a role to play in helping borrowers improve the energy efficiency of their homes.

A rise in green mortgage products and innovation is now expected as lenders risk missing their own decarbonisation targets if they don’t evolve support for homeowners.

Around 60% of the UK’s housing stock still has an EPC rating of D or below. Back in November, the Climate Change Committee said over 60% of households can achieve levels of energy efficiency that are compatible with net zero for less than £1,100.

But the challenge is in helping homeowners free up the funding needed to reduce the carbon footprint of their homes, Geale said.

Speaking at the London Congress Centre, Geale said: “Our primary objectives are to protect consumers, promote integrity and promote competition in the interests of consumers – and green mortgages are relevant to each of these.

“So we want to see mortgage lenders delivering on their net zero pledges and consumers benefitting from homes with enhanced energy efficiency.

“Green mortgages can help the decarbonisation of residential homes in the UK which account for around a fifth of the country’s greenhouse gas emissions.”

Geale went on to discuss some of the inherent risks associated with green mortgages, such as lenders targeting only to the most efficient properties, penalising homes with lower efficiency which could be upgraded, and penalising borrowers who wouldn’t currently be able to make improvements without help.

“Many people use every last penny they have to simply buy a home, pay the legal fees, stamp duty, removals, and essential furnishings. It may not be practical or feasible to borrow additional money to fund energy efficiency when they first move in,” Geale said.

“To help address this issue, we’re now seeing some green mortgages emerging where the incentives are available at any point in the lifetime of a mortgage, meaning lenders can help borrowers decarbonise their home as and when they are ready – rather than only being available at the point of taking out a mortgage, which may be the least practical or affordable time for many.”

He also said brokers have a pivotal role to play in the process by helping borrowers navigate a ‘complex and nuanced’ landscape in terms of green home finance available.

According to the Green Finance Institute, the green mortgage sector has increased from three to more than 50 products in recent years.

And it’s not just the government’s net zero targets at stake. Geale said it was highlighted at a previous FCA workshop with mortgage lenders and brokers that emissions from mortgaged homes are estimated to account for 80% of lenders’ total emissions. If some of those homes aren’t decarbonised, lenders risk missing their own net zero targets.

With lenders’ targets for green lending significantly outstripping current volumes, more innovation and expansion is expected.

It also remains to be seen what further incentives for homeowners will be introduced by the government, following the launch of its Powering Up Britain strategy last month.

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