Building a green mortgage market Tuesday 20 March AECOM, Aldgate - - PowerPoint PPT Presentation

UKGBC - Together for a better built environment 1

Building a green mortgage market

Tuesday 20 March AECOM, Aldgate Tower #GreenMortgages

UKGBC - Together for a better built environment

Agenda

09.00 Introduction Richard Twinn, UKGBC 09.05 EeMAP project overview Stephen Richardson, WorldGBC 09.15 EeMAP consumer research Marco Marijewycz, E.ON 09.25 Green Finance Taskforce Gervase Poulden, BEIS 09.35 Ecology’s sustainable mortgages Ian Rigarlsford, Ecology Building Society 09.45 Panel discussion 10.30 Panel discussion close 11.00 – 13.30 EeMAP workshop

• Aim to better represent

energy in the mortgage process by looking at the fuel estimates in financial affordability

• LENDERS website

provides example ‘Decision in Principle’ stage prediction tool www.EPCmortgage.org.uk

EeMAP: The Story So Far

Stephen Richardson, WorldGBC

• Mortgages = ⅓ of total EU banking sector assets -

worth ½ EU GDP (€7 trillion)

• Most well-known and cheapest form of property

loan

• Engage with key “trigger points” for renovation

(purchase, refinance)

• EU capital market reforms – EU setting out strategy

for sustainable finance

• Leading mortgage lenders recognise case for

favourable capital treatment if loan data can evidence lower risk

Why mortgages and why now?

“has the potential to change consumer behaviour” “opens tremendous social and economic opportunities for households, lenders and investors” “A clear and common framework constituting an Energy Efficient Mortgage would help us grow this market” “we support the development of the EeMAP initiative”

“Now is the time for private financial institutions to enter the market at scale”

Growing enthusiasm amongst Europe’s biggest banks

“A unique partnership to leverage the power of mortgage lending in reducing the energy use of Europe’s buildings.”

EeMAP GBC Team

Project Timeline: Energy Efficiency Work

Research Phase

State of Play Reports

Pilot Phase

10x National Workshops Initial Pilot Outcome s

Consultation

Draft Proposals & Consumer Research Updated Proposals for Pilot Phase Public Consultation Closes 12 March

2018 2019

OCT NOV DEC JAN FEB MAR APR MAY JUN JUN

2017

Building Assessment Briefings

Detailed market intelligence covering:

• Characteristics of the building stock
• Energy performance certificates, eg: access, QA procedures,

coverage, etc.

• Other energy performance assessment infrastructure
• Energy performance measurement infrastructure
• Existing EE finance initiatives
• Sustainability assessment and certification landscape

Available from worldgbc.org/green-mortgages

EeMAP Pilot Scheme

June 2018 onwards

• To test the EeMAP guidelines in an
• perational environment
• Create the learning and relationships needed

to strengthen value-chains

• In time, mortgages will be issued, in line with

EeMAP’s proposed guidelines

• Lenders will identify and ‘tag’ existing

mortgages that meet the requirements

• Anonymised data on energy performance will

be collected by the EeMAP consortium

EeMAP National Workshops

• To gather detailed national feedback on proposed Building Performance Criteria
• To explore national implementation
• Feedback will be collated by WorldGBC Europe
• Feedback used to refine to proposals ahead of the pilot in June

Energy Efficient Mortgages Initiative Consumer Research Insights

www.energyefficientmortgages.eu 16

Marco Marijewycz International Market Manager, E.ON EeMAP Consortium Member

We conducted 500 interviews in each market with consumers who had recently taken out a mortgage, or were actively considering a mortgage

First time buyer 1st mortgage or considering first mortgage

19% 24% 17%

Experienced mortgagee

• nto their 2nd or more mortgage

54% 54% 48%

Multiple mortgage holder 2 or more mortgages

27% 22% 34%

Whilst energy efficiency is relatively less important than price and location when buying a property, in Italy it is a key consideration

• X1. Which of the following are most important when considering which property to buy?

Base: UK (525), Italy (516), Sweden (543)

Important factors when buying a property

All respondents Price Location of the property Size of the property Outdoor space included e.g. garden Look and design of the property Layout of the property e.g. floorplan How energy efficient the property is Price Location of the property How energy efficient the property is Size of the property Closet and storage space Age of the property Outdoor space included e.g. garden Price Location of the property Size of the property Layout of the property e.g. floorplan How energy efficient the property is Look and design of the property Outdoor space included e.g. garden Importance

Then we introduced an Energy Efficient Mortgage concept which was adapted with feedback from our initial focus group phase

Standard Mortgage Product

Energy Efficiency Improvemen t Loan

(EEIL)

Energy Efficient Mortgage (EEM)

• Packaged mortgage product made up of two linked loans
• EEM product carries an interest rate discount
• EEIL is a low cost loan facility linked to mortgage
• EEIL funds upgrades determined by energy audit
• Two installation approaches available – managed or DIY

Across each market, we asked a series of questions to unpick reaction to the proposition

How appealing is it? Is it understood? Is it relevant? Is there an appetite to take

• ut a Energy

Efficient Mortgage? We’re able to isolate key consumer groups across each metric, to understand who may be the initial target market for the Energy Efficient Mortgage (EEM)

• B3. How clear are you on how this new mortgage product works?

Base: UK (525), Italy (516), Sweden (543)

The majority of consumers in all markets feel they are clear how the Energy Efficient Mortgage works…

Claimed understanding of EEM proposition

All respondents

42%

Very / quite clear Very clear

72% 53%

Very / quite clear Very clear

80% 30%

Very / quite clear Very clear

58%

* Unclear in each market 7% of less

• B2. How relevant is this new mortgage product to you?

Base: UK (525), Italy (516), Sweden (543)

… and Italian’s feel it is most relevant, as some consumers in Sweden struggle to believe it could be of interest to them

Claimed relevance of EEM proposition

All respondents

34%

Very / quite relevant Very relevant

63% 53%

Very / quite relevant Very relevant

79%

Very relevant Very / quite relevant Not at all relevant

20% 19% 43%

* Not at all relevant UK = 10%, Italy = 3%

The Energy Efficient Mortgage holds greatest appeal to the Italian market, and outright rejection of the proposition is minimal…

Very appealing (T2B) 37% 55% 31% Appeal of EEM proposition

All respondents

• B1. Thinking broadly about the new mortgage product you have seen, how appealing do you find it?

Base: UK (525), Italy (516), Sweden (543)

Very / quite appealing (T3B) 66% 80% 58% Very unappealing (B2B) 7% 3% 9%

“This would be brilliant – we’ve been wanting to do something like this for years… there’s no downside – 10/10” Sweden “I like the idea

• f improving energy

efficiency and I think that in the long run I’ll save money” Italy “An excellent opportunity for energy improvement in my home, helping not

• nly me, but the

environment” Italy “I like trying to be green and love idea of being rewarded for it” UK

Significantly higher or lower vs. other markets

• B10A. BARRIERS: Which of the following reasons best describe why you do not find this product appealing? UK=62, IT=35, SW=96

Those who do not find the Energy Efficient Mortgage appealing are already planning on buying an energy efficient property, or do not want to take out an additional loan

Barriers

All who do not find the EEM appealing

Do not want to take out / cannot afford an additional loan 18% I already have an energy efficient home, therefore it is not applicable to me

Primary barriers

11% 18% 25% 23% 15%

Most important reason

(select 1 only)

• B10A. BARRIERS: Which of the following reasons best describe why you do not find this product appealing? UK=62, IT=35, SW=96

Length of time for the work and a predicted short tenure are secondary barriers, alongside a worry about ‘being tied in’ to a certain mortgage

Don't have time for home renovation / too much of a hassle

10%

I don't see myself in my home long enough to benefit Worry this would tie me in to a mortgage provider for a long time I am not interested in making my home more energy efficient

Secondary barriers

6% 7% 3% 11% 7% 8% 6% 4% 8% 6% 3%

Barriers

All who do not find the EEM appealing

All other barriers under 6%

Most important reason

(select 1 only)

• B7. How appealing do you find each of the following aspects of the Green Mortgage, along with the Energy Efficiency Improvement Loan?

The Energy Efficient Mortgage’s financial advantages drive its appeal, with aspects related to energy and property also important drivers

Finance

Getting a lower interest rate

• n your mortgage, and saving

money in the long term

What is driving appeal?

All who find EEM appealing

Energy

Bringing down the cost of your energy bills, and making your home more warm and comfortable

Property

Increasing the value

• f your property, and

making it easier to sell

Home improvement

Getting a competitive loan for home improvement purposes

Green

Reducing your carbon footprint

1 2 3 4 5

Consistent across markets Most attractive aspect

(select 1 only)

Appeal of Installation options A & B

All who find Green Mortgage appealing

• E1. How appealing do you find the below installation option? All who find Green Mortgage appealing UK=462, IT=481, SW=447

T3B / B3B

A

NET unappealing

11% 9% 14%

B

NET appealing NET unappealing

62% 74% 45% 20% 9% 29%

Significantly higher or lower vs. option A

While both installation options appeal, Option B proves to be more divisive in the UK and Sweden - but in Italy A and B are of equally appeal

NET appealing

72% 75% 54% A managed service using a lender’s preferred partner(s) A DIY/self-managed refurbishment project

Why do you find it appealing?

All who find installation option appealing

• E2. SUMMARY: Which of the following best describe why you find it appealing?

Across all markets, keeping costs in check and ensuring the quality of the works are key factors when considering both installation options

Top 3 reasons

✓ The cost of the installation is guaranteed ✓ The quality of the installation is guaranteed

Because the installer is recommended

✓ Do not have the hassle of managing the installation ✓ I have control over the cost of the installation ✓ I can guarantee the quality of the installation Because I pick the installer myself ✓ I have control and flexibility

A B

Consistent across markets Reasons are mirrored across the two options

…but checking the financial details in full would be an important step before signing up

• B7. How appealing do you find each of the following aspects of the Green Mortgage, along with the Energy Efficiency Improvement Loan? All who find Green Mortgage appealing UK=499, IT=501,

SW=496

Communicating the financial benefits of the proposition will be key – it’s important the product provides long term financial gain

Consumers say the idea sounds great in principle…

The financial advantages of the Energy Efficient Mortgage drive its appeal

“It's very attractive but I'd still like to compare it against

• ther available deals”

UK “It would depend on the monthly costs offset against the money saved being more energy efficient” UK “Benefits look good, but would need more information to compare” Sweden “I would have to understand how much I would be paying in monthly installments” Italy

Building a green mortgage market

Gervase Poulden, Head of Owner Occupier Energy Efficiency, BEIS 20 March 2018

Why are green mortgages important?

Risk – Green Mortgages offer opportunity to properly reflect the potential lower default rates, lower costs and higher value of more efficient homes, reducing risk to

• lenders. Also a chance to reduce exposure to climate related risks by improving worst

properties. Opportunity – for lenders to deepen engagement with their customers and offer new products to reward them for choosing a more efficient home or allow them to make improvements to their homes generating new business and upgrading infrastructure. Challenge – Clean Growth Strategy set aspiration for as many homes as possible to be EPC C by 2035. Green mortgages could play a vital role in supporting this, providing a demand incentive, and support to homeowners to finance energy improvements.

A priority for ministers

“It is a priority of mine that people are able to access financial products that support their values, whether that be sharia-compliant loans or green mortgages that have a positive environmental impact” Stephen Barclay, Economic Secretary to the Treasury, 18 September, 2017 “The green finance taskforce that I set up with the Treasury last year will be reporting shortly. One of its strands of work is how we get green mortgages to be a proper retail offering “ Claire Perry, Minister of State for Energy & Clean Growth, 16 March, 2018

Green Finance Task Force

• The Green Finance Taskforce, announced in the Clean Growth Strategy.
• Aiming to build on expertise of UK finance sector to inform and advance policy

development on green finance, with the aim of

• Helping to deliver the investment needed to meet the UK’s Industrial Strategy

and Clean Growth Strategy.

• Further consolidating the UK’s leadership in green finance.
• The Taskforce includes members from industry, academia and civil society and has

been given six months (to spring 2018) to provide recommendations to government on scaling-up green finance and remaining at the forefront of the market internationally.

Green Finance Task Force

The key underlying questions for the Taskforce to consider will be: 1. What is the investment that will be required in each sector? 2. What are the barriers preventing this investment? 3. What is the role of private financial markets in accelerating this investment? 4. How can Government support the acceleration of this investment? 5. How can Government enable better risk management? 6. How can Government support the development of particular products, for example green mortgages for owner occupiers and the buy-to-let market? 7. What is needed to strengthen the UK’s international leadership position andensure it captures greatest share of global opportunity to finance CleanGrowth?

Call for evidence: Building a market for Energy Efficiency

• Alongside the Clean Growth Strategy, we published a Call for

Evidence on ‘Building a Market for Energy Efficiency’.

• The call focussed on proposals for encouraging owner
• ccupiers to carry out energy performance

improvements to their homes, and included ideas for encouraging banks to offer green mortgage products.

• It closed on 9 January. 88 organisations responded and

we are currently analysing responses. We plan to publish a summary of responses in May.

Source: International Energy Agency, ‘Capturing the multiple benefits of energy efficiency’ 2014, pg 18-27

Decrease running or sale costs for more efficient properties and increase those for less efficient

• nes.

Communications campaign targeted at intermediaries – estate agents, building trade etc.

Communications Campaign Price Signals EPC Reform

Range of targeted fiscal discussed [loans, subsidy, conditional mortgages Additional trigger points for requiring EPCs, & improving quality

Call for Evidence - Demand side proposals

Fiscal Levers

Call for Evidence - Supply side proposals

Mortgage Lenders disclosure or voluntary targets for lenders DNO/ GDNs incentives additional incentives for DNOs/ GDNs

£10m innovation fund test new retrofit technologies, ways to encourage innovation in ECO

Supply chain Trials to fund projects to upskill RMI chain on retrofit Data - virtual EPC project improve performance data on homes

What can lenders do to support green mortgages?

Build on the experience of banks such as ING in the Netherlands, and Fannie Mae/ Freddie Mac in US. Some of the actions that lenders could take could include: 1. ‘Green tagging’ of properties, and disclosure of results. 2. Use of the capital markets and green bonds to secure lower cost financing for more efficient properties 3. More accurately reflecting the energy performance of buildings in affordability calculations 4. Voluntary targets to improve performance of homes lent to 5. Green training and targets for frontline sales team

Questions

Thank you

Contact details: Gervase poulden@beis.gov.uk

Building a green mortgage market

• Ecology’s sustainable mortgages

Ian Rigarlsford, External Affairs Manager Tuesday 20 March 2018

About us

Our mission ▪ Building a greener society by providing mortgages for properties and projects that respect the environment and support sustainable communities Our specialism ▪ Non-standard cases – we’re experts in unusual and unique projects, and may be able to help when other lenders can’t

About us

Established 1981 Assets £173 million Mortgage Assets £117 million Mortgage Book Value £270 million BS Sector growth 2012-2016 18.99% EBS growth 2012-2016 61.6% EBS profitability 2016 11/44 Asset target 2023 £300 million We operate throughout the UK including NI

About us

▪ Ethical finance ‘pioneer’ ▪ Ethical guidelines for Treasury operations ▪ Procurement practices – paper, furniture, etc. ▪ Fair Pay – 1 to 8 ratio ▪ Eco-build offices ▪ Fair Tax

Sustainable Mortgages

▪ Innovative award-winning mortgages ▪ Unique mortgage discounts reward energy efficiency ▪ Lending assessed on environmental benefit as well as financial aspects ▪ Inclusive environmental criteria: EPC improvements, renovation of empty property, renewable energy-system installation

▪ Business is from customers direct or financial intermediaries ▪ Lend throughout the UK ▪ Personalised underwriting – each case assessed on its own merits ▪ Flexible underwriting parameters and for staged payments

Sustainable Mortgages (cont’d)

What do we lend on?

Self-build 80%

maximum (interest only or capital repayment)

Conversion

80% maximum (interest only or capital repayment)

Renovation

90% maximum (interest only or capital repayment)

Affordable housing

Shared ownership, restrictive covenants limiting value of sites

Buy-to-let

All these project types can be considered on a buy-to-let basis

Other Woodlands,

moorings, new build

We welcome the unusual

We can consider a wide range of property- types:

▪ Live/work units ▪ Timber frame/clad or steel frame ▪ Earth sheltered dwellings ▪ Non-traditional constructions, e.g. straw bale, thatch, rammed earth, wattle and daub ▪ Structured insulated panels (SIPs) ▪ Insulated concrete forms ▪ Listed buildings ▪ Modular /custom build

▪ SVR during the project construction / renovation ▪ Once project’s finished and required documents received, they’ll become eligible for one of our C-Change discounts ▪ We will require the Building Regulation Completion Certificate and the final Energy Performance Certificate (EPC) in order to apply the discount ▪ Low set-up fees for the mortgage

Our mortgages

Our C-Change discounts

We offer different types of discount:

▪ Sustainable homes discount ▪ Retrofit discount

Sustainable homes discount

▪ For self-builds and conversions: usually for new build projects, but can apply to renovations and conversions ▪ Tiered discounts based on property’s proposed energy rating ▪ The higher the energy rating, the higher the mortgage discount ▪ Discount ranges from 0.75% (EPC A) to 1.25% (Passivhaus Certified) off our SVR of 4.65%

Sustainable homes discount (cont’d)

▪ Predicted EPC has two ratings: ▪ Energy Efficiency rating (EE) ▪ Environmental Impact rating (EI) We take the highest rating when considering the discount ▪ Discount applied to the whole of the mortgage for the duration of the loan

▪ For renovations: any existing home requiring extensive home improvements including works to improve the thermal performance ▪ Level of discount available is linked to improvements made to the EPC rating

Retrofit discount

▪ A discount of 0.25% is applied for each grade improvement in either the Energy Efficiency (EE) or Environmental Impact (EI) rating

We offer different types of discount:

▪ Sustainable homes discount ▪ Retrofit discount

Our C-Change discounts

▪ We lend on properties and projects delivering a positive environmental or social impact ▪ Innovative C-change mortgage discounts – aims to reward the most energy efficient properties ▪ One-to-one, expert service: dedicated team of advisers every step of the project ▪ Flexible underwriting: we never take a tick-box approach, enabling us to consider non-standard projects

Summary

Building a green mortgage market

UKGBC - Together for a better built environment

Stephen Richardson, WorldGBC Marco Marijewycz, E.ON Gervase Poulden, BEIS Ian Rigarlsford, Ecology Building Society

Panel Discussion

UKGBC - Together for a better built environment 59

Building a green mortgage market

Tuesday 20 March AECOM, Aldgate Tower #GreenMortgages