Need a bigger mortgage? Buy an eco home

In Camden, the average house price is £832,191, making for a deficit with average incomes of -£106,1

In Camden, the average house price is £832,191, making for a deficit with average incomes of -£106,138 and a house price to wage ratio of 13.80 - Credit: Getty Images/iStockphoto

Homes with higher EPC ratings could offer buyers bigger mortgages says new report, but the Highgate Society Sustainable Homes Group has raised concerns that the EPC system is flawed

Government-funded research has revealed that homebuyers could take out a bigger mortgage if lenders took into account the Energy Performance Certificate (EPC) of the home they were buying. Currently, the energy efficiency of properties is not part of the mortgage affordability calculation carried out by lenders.

The report by the Lenders group assessed data from 40,000 properties to ascertain whether savings made on energy bills in homes with a better EPC rating could contribute to more favourable mortgage deals for consumers. EPC ratings range from A to G and must be displayed by estate agents when listing a property and come 2018, landlords will be inhibited from letting property with an EPC of below E-.

At present, 90 per cent of lenders rely on ONS data based on under 5,000 homes to calculate mortgage affordability, with some asking buyers for evidence of their personal energy bills. There are currently no financial incentives for consumers to look more favourably on greener homes since the Green Deal flopped in 2015.

The report’s ‘Full Mortgage Application’ model enables lenders and buyers to estimate their bills before buying a property. The model takes into account the number of residents and type of the home, fuel type, carbon dioxide emissions, energy consumption, SAP lighting, water and space heating costs, as well as the EPC band. Together, these factors predict the annual fuel bill of the property with an accuracy of +/- 15 per cent of the known value 70 per cent the time.

The idea has proven popular with consumers, with over half of respondents to surveys by Nationwide, the Energy Saving Trust and Principality claiming they found the concept of a ‘green loan’ ‘appealing’.

However, the idea has its critics.

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Sydney Charles of the Highgate Society Sustainable Homes Group is worried about the uncertainties associated with using EPCs to calculate mortgages.

“The EPCs that I have studied are very suspect,” she said. “Whilst the intention to use a more accurate energy expenditure figure is admirable, it would be more accurate to mandate that the energy bills (that are submitted in any case) are compared with the average spend figures for the floorspace to ascertain whether more or less monthly energy spend is available to increase the mortgage.”

Indeed, in the surveys conducted by Nationwide, 20 per cent of respondents found the idea of a ‘green mortgage’ ‘unappealing’, with 12 and 11 per cent of Principality respondents finding the idea ‘quite’ and ‘very unappealing’ respectively.

The difficulty will come in assessing mortgages on older homes that are notoriously more difficult to retrofit, and calculating the difference between implied and actual energy bills.

“I’d see the proposal of relying on EPCs to be unnecessarily complicated and inaccurate,” added Ms Charles.

“I agree with what Sydney says, to some extent,” said Jackie Jones, also of the HSSHG. “The industry as a whole recognises that the EPC assessment system is less sophisticated than it needs to be, so the results that come out of the evaluation form are oversimplified and thus often inaccurate. Though of course the general picture is right in a tough-and-ready way. It’s ironic that you can look up the energy performance of, say, a new fridge or washing machine with much greater accuracy than the building they will be used in!

“I think it’s fair to say that the EPC system has been pretty much disregarded by house buyers, sellers and estate agents thus far. However, I believe having they are an important step in the right direction as, over time, the energy consumption, carbon emissions and comfort level (and health) are greatly impacted. What we really need is a more sophisticated, smarter EPC system that does impact on market values enough to be taken seriously.”

With 14.9 million privately owned residential properties in the UK, representing 15 per cent of the country’s carbon emissions, it is hoped that the report might “nudge” homebuyers towards greener homes and commercial buildings. Furthermore, with environmental awareness on the agenda for house builders and developers alike, the Lenders group argues that homes that are more energy efficient will be able to command higher price points. The proof will be in the pudding.

See the report’s working calculator to estimate the amount you could save with a green mortgage.