New Government proposals to require lenders to report on the energy ratings of properties they lend against risk wasting time and resources rather than focusing on helping homeowners to make practical and effective improvements to their property, according to the Intermediary Mortgage Lenders Association (IMLA). In its response to BEIS’s Improving home energy efficiency through lenders consultation, IMLA recognises that the housing and mortgage markets have an important role to play in addressing climate change. However, the trade body suggests that BEIS’s proposals could lead lenders to spend disproportionate time and effort ensuring their average energy ratings are at an acceptable level. The Association is also concerned that the compilation of an energy efficiency “league table” could cause lenders to base their lending decisions on a property’s energy efficiency, rather than on a borrower’s needs.
The consultation from BEIS, which closed on 12th February, proposed that lenders should annually disclose portfolio-wide EPC data, as well as the gross value of lending for energy improvement works. The Government hopes that the measures could allow comparisons to be made between lenders and provide a picture of how energy performance could influence lending decisions.
IMLA rejects the clear implication in the consultation that lenders, rather than property owners, are responsible for the energy efficiency of the properties mortgaged to them. It argues for a thorough review of Energy Performance Certificates (EPC), to ensure that they are accurate and fit for purpose. It then suggests that property owners should be required to obtain an EPC and that all inspections should be carried out by appropriately qualified assessors, with the results held on a central, easily-accessible database.
IMLA also notes that it was unclear from the consultation whether the mortgage market’s regulatory bodies, the FCA and PRA, had been fully consulted about the proposals and has pointed towards work already conducted as part of the regulators’ Climate Risk Financial Forum. IMLA cautions that more joined-up thinking is needed in order to avoid the creation of policies that cause firms to breach requirements imposed on them elsewhere.
Kate Davies, Executive Director of the Intermediary Mortgage Lenders Association, comments
“Lenders are taking the challenges posed by climate change very seriously, which is why many have already made significant moves to understand and prepare for the most immediate risks posed by our changing climate. They also recognise the important role the mortgage market has to play, with a growing number now offering ‘green mortgages’ to incentivise consumers to improve their property’s energy efficiency.
“However, these latest proposals from BEIS are highly unlikely to bring about real change. Rather, they would oblige lenders to devote way too much time compiling and disclosing data in an exercise which—at the end of the day—won’t change a single low-energy lightbulb. It makes more sense to ensure that property owners have really accurate information about the energy efficiency of their property—and the best place to start is by ensuring that EPCs are really fit for purpose. If a property’s energy efficiency is reflected in its value, homeowners will be incentivised to make improvements—which can be financed by a combination of loans, for those who can afford them, and Government grants to help those who cannot. It makes no sense to create artificial competition between lenders which could result in their avoiding lending on properties that are less energy-efficient and therefore less desirable. In the worst case this could lead to some borrowers being unable to re-mortgage or sell. It is critical that this is avoided.
“Tackling the detail behind Britain’s response to achieving net-zero carbon emissions by 2050 is a huge challenge. But rather than creating a distracting paperchase for lenders or imposing penalties if they fail to meet arbitrary targets, reducing our carbon emissions will require rather more fundamental cross-departmental thinking on where responsibility lies and how real change can be incentivised and encouraged. It will also need major investment to drive energy efficiency in the UK’s existing housing stock. These latest proposals from BEIS fall far short of the ambition needed.”
Notes to Editors
The Intermediary Mortgage Lenders Association (IMLA) is the trade association that represents mortgage lenders who lend to UK consumers and businesses via the broker channel. Its membership of 43 banks, building societies and specialist lenders include 18 of the 20 largest UK mortgage lenders (measured by gross lending) and account for about 90% of mortgage lending (91.6% of balances and 92.8% of gross lending).