Better mortgages for homebuyers

Homebuyers have potential to borrow more with better, forecasting of energy bills, new research from LENDERS backed by CEW shows.

24th July 2017

Homebuyers have potential to borrow more with better, forecasting of energy bills, new research from LENDERS backed by CEW shows.

The LENDERS report, published last week and launched in Westminster and backed by CEW, recommends a change in the way mortgages are calculated and could improve loans to homebuyers by up to £11,500.

The LENDERS project included the analysis of 40,000 sets of property data, and was undertaken by a consortium of partners: Arup, BRE, Constructing Excellence in Wales, the Energy Saving Trust, Nationwide Building Society, Principality Building Society, UCL Energy Institute and the UK Green Building Council.

Part-funded by Innovate UK and involving a consortium of industry experts, the LENDERS project set out to demonstrate that improved analysis of the likely household energy costs could improve mortgage affordability assessments and potentially allow mortgage borrowers to access a larger home loan.

The project successfully demonstrated and modelled the link between energy efficiency and household fuel bills. As a result, the team was able to create a new consumer calculator www.epcmortgage.org.uk to demonstrate the cost benefits of fuel efficiency, enabling would-be buyers to see the benefits of energy efficiency homes.

In the longer term, if this more accurate view of expenditure was used in lender affordability calculations, it could be reflected by increased mortgage lending to those with the most efficient properties. The report also suggests that the same change in forecasting could release thousands of pounds for those undertaking energy refurbishments. Andrew Sutton, Associate Director, BRE, said:

"Our research indicates that low energy homes potentially enable homebuyers to borrow more than those buying poor performing homes. Put simply, energy efficiency brings smaller energy bills, which if captured when calculating mortgage affordability could allow buyers to take out a larger loan."

Henry Jordan, Director of Mortgages at Nationwide Building Society said:

"The LENDERS project has developed a valuable tool that could help customers forecast their future home's energy costs. The work highlights the impact of home efficiency on fuel costs and presents a potential opportunity for lenders to support customer's home and environmental ambitions and to improve the UKs energy performance."

The UK Government is fully supportive of the project and Claire Perry, MP, Minster for Climate Change and Industry, attended the launch and said:

"This government is committed to making home ownership affordable for all. More accurate estimates of household energy costs could improve lending practices, lead to new sources of finance and increase energy efficiency across the country. That's why government funded this project through Innovate UK and looks forward to seeing the industry take action in response."

The LENDERS project builds on a concept from BRE in 2010 initially developed by CEW & BRE and parallel research from 2014 by UCL & UKGBC, all of which that suggested a link between a property's energy efficiency and actual fuel costs.

So, when will the change happen? Changing the underlying mortgage affordability calculation that underpins at least £127bn of lending in the UK each year is not likely to happen overnight. However, the first step is to make the forecasting tool available to homebuyers as informal guidance initially, which the project has done through its website lenders are encouraged to follow suit, with more detailed assessment of how to adapt affordability calculation likely to come in the following few years. The reaction amongst the construction industry is mixed, but for consumers this could mean a real change and this was picked up by the media and the LENDERS project was reported in the Guardian newspaper.