"Buy-to-let lenders are, in many ways, setting the direction for the wider mortgage market by testing out what works and what doesn’t. "
I recently spoke at Elmhurst Energy’s National Conference about the green mortgage space and how lenders are approaching energy efficiency and retrofitting. One of the key points I raised was just how limited the options still are.
There are currently around 60 green mortgage products available, according to the Green Finance Institute. While that’s significant progress from just four in 2019, it still makes up only a tiny proportion of the roughly 6,500 mortgage products on the market.
Of those 60, I would say around half reward those with energy-efficient properties rated A to C, while the other half offer support for retrofitting.
Lenders themselves seem to recognise that progress has been slow. Recent research from the Mortgage Advice Bureau (MAB) found over a third (35%) feel they haven’t made enough progress on green mortgages, while 48% say they’ve made some headway but acknowledge there’s still more to do. Overall, 78% of lenders believe the green mortgage sector has barely moved in the past year.
That said, I think we’ll see a shift over the next five years, now that the formal consultation is underway to require landlords to meet an Energy Performance Certificate (EPC) rating of C by 2030. Give it five years, and I think the picture will be very different.
Testing the water
Buy-to-let lenders are, in many ways, setting the direction for the wider mortgage market by testing out what works and what doesn’t.
Currently, it could be argued residential lenders don’t have much incentive - beyond a commitment to net zero - to offer meaningful discounts on green mortgages. But for buy-to-let lenders, as the 2030 deadline approaches, there’s a clear incentive to encourage energy-efficient improvements. We're already seeing signs of this, with rate reductions and cash incentives becoming more common as lenders push to get greener properties on their books.
While there’s a risk of creating a two-tier system - where those who can afford upgrades secure better mortgage deals - it should still incentivise landlords. If they can see clear financial benefits, both through lower mortgage costs and reduced energy bills, it’s likely to encourage more improvements.
There’s also the bigger question of whether lenders will end up indirectly enforcing EPC compliance. Will they refuse to lend on properties that don’t meet the standard? Realistically, this could become part of their regulatory reporting, requiring lenders to submit data on the EPC ratings of the properties within their portfolios.
We’re at a point where an EPC consultation is currently underway, with new rules potentially coming into effect as early as this year. Within the next twelve months, the Home Energy Model is expected to replace the current Standard Assessment Procedure (SAP), offering a clearer and more accurate measure of a property’s energy performance. This should help lenders, borrowers, and landlords make more informed decisions about energy efficiency improvements.
As part of the wider consultation, the EPC validity period is also being reviewed. In Scotland, for example, EPCs will soon be valid for just five years instead of ten. If similar changes are introduced across the UK, landlords and homeowners may need to renew their EPCs more frequently - potentially at every remortgage.
More prepared than some expect
With the 2030 deadline only five years away, I think we’ll start to see lenders pick up the pace in improving the energy ratings of the properties in their portfolios - especially in the buy-to-let sector. That said, I don’t think we’re in a bad position. A lot of landlords have already made upgrades, and those still in the market have had plenty of time to prepare, so I don’t expect any last-minute shocks.
Rightmove’s Green Report last year found 43% of properties for sale and 55% of rental properties now have an EPC rating of C or above - and that’s just the properties coming to market. There are likely landlords holding off, waiting to see what happens with EPC changes before making a move, while others may be planning to spread out the cost of upgrades over the next five years.
We can also take some insight from the social housing sector, where large-scale energy upgrades are already underway, with a strong focus on insulation and window upgrades. While heat pumps and solar panels often dominate the conversation, insulation remains the most immediate and effective step. Done properly, loft and wall insulation all help cut heating costs and make homes more energy efficient.
The key, though, is making sure it’s done properly. There have been plenty of cases where poor insulation work has led to damp and ventilation issues. So while it’s one of the most effective upgrades a homeowner or landlord can make, the quality of the installation is just as important. That’s why landlords and homeowners need to do their research, check references, and choose reputable installers.
A cautious approach
As part of the push to digitalise the homebuying process, we could eventually see more targeted funding directed towards areas where EPC ratings are particularly low. Digitally storing property information would give the Government a clearer picture of the UK’s housing stock and where improvements are most urgently needed - moving away from broad, one-size-fits-all policies.
While the buy-to-let market is showing progress, the residential side remains slow-moving and somewhat hesitant. I suspect lenders and homeowners are waiting to see how retrofits will be funded, particularly for those who don’t qualify for existing green schemes - with lenders also not wanting to be the first to stick their head above the parapet.
The next five years will be a busy time for lenders and landlords in the buy-to-let space, and it will be interesting to see how both rise to the challenge. How these lenders respond could also drive wider innovation in the residential market, shaping the future of green finance and influencing the direction of the sector in the years ahead.
