Making Energy A Way of Life

Andrew Sutton, associate director BRE Wales, explains how the Lenders project takes Wales a step closer to being a low carbon society.

24th April 2016

Andrew Sutton, associate director BRE Wales, explains how the Lenders project takes Wales a step closer to being a low carbon society.

Although it often feels too big and too remote from our daily lives, we all need to be engaged in the efforts to mitigate the impacts of climate change - the "stopping" climate change boat has already sailed. This means all those little steps do matter: cycling not driving, turning the lights off and using electricity off peak, wasting less and recycling, and so on.

However, there are big changes we need to make to the fabric of our society too. These include decarbonising the energy grid and introducing demand/supply sophistication, as well as improving the quality of public transport. Critical to this is embedding in our institutional processes the need for energy efficiency.

Energy must become second nature.

For landlords, the "Minimum Energy Efficiency Standards" (MEES) coming in from 2018 represents a first step in this – properties with EPC's lower than "E" will no longer be allowed to be let, albeit with some exceptions. For homeowners, CEW is working alongside Nationwide and Principality Building Societies, BRE and others, to drive energy into the way mortgages work through the LENDERS project.

The "LENDERS" project, conceived by BRE and developed from initial research with CEW, is a collaboration between BRE, Nationwide Building Society, Principality Building Society, Energy Savings Trust, UKGBC, UCL, ARUP and CEW.  Part funded by Innovate UK the project proposes to make a subtle change to the way mortgage companies assess what customers applying for their loans can afford. Currently, a customer's incomings and outgoings are assessed via an 'affordability calculation'. Energy costs represent the largest unavoidable cost that is factored into this calculation for a customer after the mortgage repayments themselves.

But, despite the availability of Energy Performance Certificates (EPCs) on all properties being sold, no consideration of the energy efficiency of the property being mortgaged is made, and the assumed energy costs currently only vary by around £25 per month and therefore have little impact on the capital mortgage amount the customer might be offered.

The LENDERS project is generating, and robustly evidencing via large scale data analysis, an alternative approach. Through collecting data from the EPC alongside information on the occupancy gathered in future mortgage applications, the project believes it can provide a mechanism to the mortgage industry that more accurately predicts the customer's energy costs. This will provide estimates of energy costs with a far greater range (perhaps £20 – £200 per month), and through the rest of the 'affordability calculation', will therefore much more significantly influence the capacity of the customer to repay a mortgage and, by consequence, change the capital mortgage amount the customer might be offered.

If adopted by mortgage companies, this subtle change in the 'affordability calculation' could result in geared mortgage offers, with higher capital amounts of up to £15,000 or more being offered to purchase low energy homes compared to otherwise similar inefficient properties. It also opens the opportunity for mortgage companies to offer mortgages with conditions, or home improvement additional loans, based on enhancing the energy performance of an existing property, meaning that those in poorly performing homes also have a route to finance energy improvements.

Through the LENDERS project, the goal is to embed energy efficiency into the bedrock of our mortgage institutions, and through this society's approach to thinking about energy when making the important step of buying or selling a property. After all, who buys a car these days without at least looking at the fuel economy and road tax costs?

More on the LENDERS project can be found on the dedicated LENDERS website, www.epcmortgage.org.uk