LENDERS Core Report

Core report from the LENDERS green mortgages project, which sought to better reflect household energy costs into mortgage applications.
Climate Change Mitigation Technical Report

The LENDERS green mortgages project sought to better reflect household energy costs into mortgage applications.

Funded by Innovate UK, the LENDERS Project (“Levering Economics for New Drivers to Energy Reduction & Sustainability”) was undertaken by a consortium of eight partners – Nationwide Building Society, BRE, UKGBC, Arup, Principality Building Society, the Energy Saving Trust, UCL Energy Institute and Constructing Excellence Wales.

The project built on our 2015 report with the UCL Energy Institute: The role of energy bill modelling in mortgage affordability calculations. The report explored the extent to which mortgage lenders could better estimate energy costs using data that is already readily available to them, including properties’ Energy Performance Certificate (EPC) rating. The analysis showed that these estimates could significantly improve upon those currently used in mortgage affordability calculations.

Launched in Novermber 2015, the LENDERS project undertook large scale data research and analysis to establish if there is a reliable link between the energy efficiency information available about homes and the actual fuel costs that those homes incur. It also built the evidence base for using these more accurate estimates of energy bills in mortgage affordability calculations.

The project goals were:

  • To improve the accuracy of predictions used to estimate home owners’ fuel/energy costs when calculating mortgage affordability;
  • To give this improved method to the mortgage industry (free of charge), in a fashion that they can adopt as easily as possible;
  • To provide sufficiently robust supporting evidence to the mortage industry to allow them to be confident in switching to the new method.

If mortgage providers adopt a more reliable prediction of the fuel costs as part of a home owners monthly outgoings, this would allow lenders to better estimate how much a home owner would be able to afford to repay each month on their mortgage. Lenders may therefore be able to justify higher lending to low energy properties and, in turn, this could create a virtuous circle of borrowing that both supports energy home improvement and lends new borrowers more money if they buy low energy homes.

This could have a transformative impact on the housing and energy efficiency markets by making energy performance a fundamental part of mortgage lending. Over time, it could lead to a much closer relationship between properties’ energy efficiency and their value, and establish a major driver for retrofit of the UK’s homes.

The LENDERS core report was published in July 2017 and is available here: Lenders_Core_Report_1. The full project report is due to be published in September 2017. The project also developed a fuel bill prediction calculator which is available at www.epcmortgage.org.uk.

Related