Published: 17 January 2012 | Author: Bernard Clarke
Lenders recognise the government’s desire to improve the environmental performance of housing, but are urging policy-makers to avoid implementing the proposed Green Deal in a way that could burden house-holders or affect lending activity.
Under the Green Deal proposals on which the government is currently consulting, ministers want individuals and businesses to be able to make energy efficiency improvement to buildings without paying anything upfront. The Department of Energy and Climate Change wants owners to be able to pay for improvements in instalments attached to their electricity bills over a number of years.
Lenders support the right kind of measures to improve energy efficiency in housing but have some concerns with the detail of the government’s proposals. There is potential for unintended consequences, and these should be resolved now so that they do not inhibit the future success of the scheme.
- The decision to opt for improvements under the Green Deal would be made by the current home-owner, but would, in effect, create a charge on the property for which future owners could become responsible.
- So far, the government has not included lenders in the list of parties it believes would need to give consent to a Green Deal installation. However, for at least some changes to a property that would be possible under the Green Deal, a first charge lender would need to understand the proposed modifications and how they were to be implemented. And the lender would need to know whether requirements for listed buildings, building regulations, conservation areas and building warranties had been met.
- There is potential for consumers to misunderstand the Green Deal’s proposed 'golden rule,' namely that expected savings for home-owners must be greater than, or at least equal to, the costs attached to the energy bill. Lenders are concerned that the 'golden rule' may be seen by consumers as a de facto guarantee of energy savings when, in reality, the level of actual savings cannot be specified in advance. If anticipated energy savings are not achieved, there could be an impact on household finances, including the ability of some home-owners to continue to meet their mortgage commitments.
- If the lender were required to take possession of the property, it might be liable for continuing payments under the Green Deal. Covering these costs would create a burden both for lenders and former owners, who may be relying on the proceeds of the sale of the property to discharge their debts. Covering the costs of the Green Deal while the property is in possession would reduce the amount former owners may be entitled to when properties are sold.
- Selling a property in possession could become more difficult if potential buyers are concerned about future Green Deal commitments – particularly if there are doubts over whether the ‘golden rule’ has been breached. That could mean a lower sale price, or that it takes longer to sell the property, creating additional difficulties both for the former owner and the lender.
- If these issues are not considered carefully, borrowers taking out a Green Deal plan may find they have to redeem it before selling the property, or accept a lower price.
Lenders acknowledge that the Green Deal proposals are well-intentioned, but it is important that they are implemented in a way that that does not create unnecessary concerns and problems down the track.
We would like to work with the government on its proposals, and the ways round the issues we have identified. We support measures to improve the environmental performance of property, but want to avoid creating unintended problems for home-owners and lenders.