We welcome the proposals[1] for a mandatory requirement on lenders as an innovative tool for improving the UK’s housing stock.
The proposals support the objective set out in this COP26 document on sustainable finance – of moving portfolios and lending towards net zero. The proposal essentially does this by putting the onus on the lender to take steps to decarbonise the stock. Since homes are likely to account for a sizeable proportion of lenders’ (UK-based) Scope 3 emissions, the proposals will support lenders to monitor and manage these emissions. We do not think that voluntary requirement would be either successful on its own or appropriate given the climate emergency.
Regulation of lenders could be a very effective policy lever to effect change in over a third of the total housing stock in England and Wales. However, the current proposals do not do enough to meet the stated intent to ‘significantly improve the energy performance of mortgaged properties in the 2020s’ or contribute sufficiently to the recent commitment for ‘at least a 68% reduction in emissions by 2030’ (from a 1990 baseline). Between 1990 and 2020, emissions from heating homes, (which account for 15% of UK carbon emissions) have reduced by just 15% (compared with a 41% reduction for the whole economy). It is clear that a steep increase in both ambition and delivery is needed here.
There are over 10 million mortgaged (owner-occupied and private rented) homes in England and Wales, at least 80% of which are likely to be refinanced by 2030. However, the current proposals would focus the improvements on:
- Homeowners able to afford a commercial loan, and
- Homes that can be improved to EPC C with a maximum investment of £10,000 (including VAT, survey and Trustmark costs).
These factors are likely to reduce the number of homes upgraded from between 8-10 million to 2.8 million, with an average improvement of just five SAP points (from SAP 64 to SAP 69[2]) by 2030. This improvement is just half of the 10 point SAP improvement that has been achieved by the entire owner-occupied sector over the past nine years – rather than the ramp-up of action that is needed. We recommend that the proposals are extended to all potential homes and the target increased from an average of EPC C to a minimum of EPC C (with exemptions where necessary). Doing this would triple the number of homes improved, support 75,000 jobs and stimulate £24 billion additional investment. The impacts are summarised in the table below (the VAT and income tax revenue from this investment has not been estimated and would be additional).
Table 1: comparison of the current and potential impacts of the proposals
| Benefit | Current | Potential |
| Homes improved | 2.8 million[3] | 8-10 million[4] |
| Average improvement (SAP points) | 5[5] | 13 (estimate) |
| Additional investment to economy[6] | £8 billion | £24 billion |
| Jobs supported to 2030[7] | 25,000 | 75,000 |
We think there are two main areas the government could address to extend the scope and ambition of the proposals while avoiding affordability concerns. These are:
- Alternative finance: There is a need for alternative finance where homeowners and / or retrofit packages do not meet commercial lending criteria. We recommend the government considers using the proposed National Infrastructure Bank to provide long-term, low-interest loans that would allow the proposals to be extended to all mortgaged homeowners.
- Non-financial support: Our experience in supporting households to change their homes indicates that people are unlikely to act at the scale required without trusted and impartial advice and support on what to do and how to act. While digital advice and signposting is available through the UK Government’s Simple Energy Advice, there is a need for a more comprehensive approach to listen, engage and expertly respond to households’ priorities and potential concerns. This is particularly relevant where this involves taking on significant additional debt, new technologies, disruptive measures and / or concerns about past mis-selling and poor quality work in the sector. We recommend that the government commissions a new ‘net zero’ homes service to support people with the change they will need to effect in their homes for the UK to meet its net zero target.
[1] https://www.gov.uk/government/consultations/improving-home-energy-performance-through-lenders
[2] The average SAP of owner occupied homes now is SAP 64. SAP 69 is the target proposed in the consultation.
[3] Estimates from the consultation
[4] There are over 10 million PRS and owner occupied homes in England and Wales. If there was alternative finance and advice for homeowners then the impact could be tripled.
[5] Estimate from the consultation
[6] Jobs and total investment estimated as a proportion of upgrading all homes to EPC which has been estimated to cost £80bn and support 200,000 jobs from EEIG, 2019
[7] Ibid