See the bigger picture on sustainability

21 June 2022

You can’t have escaped the running commentary about potential changes to Energy Performance Certificate (EPC) rules for landlords and how it will impact them and the private rental sector.

It represents a potentially huge challenge to landlords.

But, beyond this looming rule change, is a broader and deeper focus on sustainability across the housing and mortgage markets. It will lead to large-scale change in the next 10 years and beyond.

And it will affect all homeowners, not just landlords.

Why it’s happening

Climate change is already affecting people and habitats around the world, and it’s set to get worse. The Intergovernmental Panel on Climate Change’s latest report said, “without immediate and deep emissions reductions across all sectors, limiting global warming to 1.5C is beyond reach”.

The UK Government has pledged to hit net zero by 2050 – a challenge that’s only possible if the housing sector steps up. Our homes contribute 14% of UK carbon emissions and our industry has a responsibility to support the net zero target.

Reducing emissions from UK housing stock will also be dependent upon the decarbonisation of the energy supply itself, something the mortgage sector will have little influence on.

But there’s still plenty we can do to smooth the way to a more sustainable housing market.

What’s changing now

Potential new legislation will make it mandatory for both builders and landlords to boost the energy efficiency of residential properties.

It’s proposed that new tenancy agreements in the private rented sector will only be allowed on properties with a minimum EPC C-rating (this is currently proposed to be phased in from 2025 but is expected to be delayed).

These are not yet final rules but, despite widespread coverage, many landlords may not be aware of the potential changes and how they’ll be affected by them.

In 2025 the Future Homes Standard will also be introduced to complement building regulations. It aims to ensure that new homes produce at least 75% lower CO2 emissions compared with those built to current standards.

The Government wants to take a fabric-first approach to boosting the energy efficiency of new and existing homes. This means focusing on measures that upgrade the building fabric before making changes to the heating system.

It could be as simple as installing high level insulation or double glazing, for example, to prevent the escape of heat from buildings. This approach can then be complemented by energy-efficient heating systems.

The final Future Homes Standard rules and building specifications have not yet been published, but it’s expected that low carbon heat sources (such as heat pumps or heat networks) will become the norm.

Modern methods of construction (MMC) and off-site manufacturing are also burgeoning sectors. These homes can be cheaper, quicker to build and more energy efficient than the traditional building process, so we’re likely to see a gradual rise in the number of homes built in this way over the coming decade.

What about the mortgage market?

Things are slowly changing in the mortgage industry too.

There are more green products on offer than ever before, but many reward purchasers of energy efficient properties, rather than supporting those in less efficient properties to make improvements.

We’re likely to see more further advance products targeted at this sector as well as green buy-to-let mortgages designed to support landlords through the EPC changes.

Behind this change is the fact that the Government wants lenders to improve the average EPC ratings of their back books, according to its Heat and Buildings Strategy published last year.

Of course, lenders can’t act alone to make this happen; a joined-up approach across multiple industries and Government is needed. Brokers, estate agents, manufacturers and installers of low-carbon solutions and other stakeholders in the housing market have a part to play to educate homebuyers and homeowners on the benefits of energy-efficient housing.

At Virgin Money, we already have a range of green deals that offer a lower rate to those purchasing new build properties with an A and B rating.

The bigger picture

Sustainability will become a core feature of the mortgage and housing markets in the next 10 years, and we all need to embrace it.

It will also affect how we run our own businesses.

Virgin Money’s newly launched sustainable business coach has been designed to help small business owners, including brokers and your self-employed clients, to improve the sustainability of their own businesses. It offers practical, straightforward and actionable guidance to make small steps to become more sustainable.

We are on a journey to sustainability too. We have clear goals to reduce the negative impacts of our operations, suppliers and partners on society and the environment.

It won’t happen overnight but, bit by bit, we can all reduce the impact of the housing market on the UK’s carbon emissions. And we can tackle climate change by making our businesses more energy efficient too.

Find out more

If you’ve got any questions about our green mortgage range, get in touch with your Business Development Manager, or dedicated Regional Service Team.

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