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Energy efficiency initiatives: Green Deal and Domestic Renewable Heat Incentive

Last updated: 22 May 2017

At a glance

  • Energy efficiency initiatives can help reduce household energy running costs.
  • There are currently three main initiatives:
  • For government, the overarching aim of the initiatives is to help the UK reduce its carbon emissions and to achieve target commitments on energy production from renewable sources.
  • The initiatives can involve mortgage lenders in a number of ways, particularly if the customer wants to install expensive energy efficiency technology which can affect the structure and appearance of the property. If the installed technology is also owned by other people or businesses, then lenders’ interests could also be affected.
  • The government's Bonfield Review report 'Each Home Counts', proposing a new Quality Mark for all energy efficiency and renewable energy measures, was published on 16 December 2016.
  • The Scottish Government's HEEPs equity loan pilot scheme launched on 4 January 2017 and is expected to run until March/ April 2018. Officials have provided an information pack, and more details are available online from the Energy Savings Trust.  

Our position

In principle, lenders welcome measures that might reduce energy running costs on mortgaged properties, but they will want to know when customers have entered into agreements or plans under these schemes, as well as what equipment has been installed and agreements or rights over it, so that they can assess any potential positive or negative impacts on their exposure to risk, or on property valuation.

We have flagged to government concerns about

  • Installation and running costs and their potential impact on mortgage affordability
  • Third party financing and third party rights in relation to equipment and the mortgage security
  • Effects on property value and market appeal if measures or equipment are installed
  • What happens in possession cases, where measures or equipment have been installed under these schemes

The complexity of the schemes not only contributes to lower-than-expected customer uptake, but can also lead to a more cautious approach among lenders

Lenders will adopt their own policies towards the schemes, dependent on how the market develops as the Green Deal and RHI Domestic is taken-up by customers and as properties with measures or systems installed under the schemes turn over in the property market.

Lenders will make their own commercial decisions in response to the schemes, and these may vary.

The market will determine any impact schemes such as the Green Deal and Domestic RHI might have on property values. 

Why this is important for lenders

In principle, lenders support initiatives which help reduce energy running costs on mortgaged properties. Reduced running costs can ease pressure on household budgets and help customers with mortgage affordability.

Energy efficiency measures can range from loft or under-floor insulation through external solid wall insulation to solar panels, heat pumps and biomass (wood pellet) renewable energy heating systems.

Some measures cost much more than others, and deliver different levels of saving relative to their cost and lifespan.

Certain types of measures are more intrusive to the structure and appearance of a property, and can affect its appeal to other buyers and its value. 

More complex technologies such as solar panels and renewable heating systems are often owned and installed by third party provider businesses, because of their cost and maintenance needs.

Leases of roofspace and plant rooms as well as the equipment itself are often required. Customers can be tied-in to supply and maintenance agreements with providers, which future purchasers might find restrictive or might not want. 

Lenders need and expect common arrangements and standard legal documentation for leases, and for the operation of the schemes not to have a detrimental impact on the market appeal and value of the property, or their ability to dispose of it quickly and recover their loan security in possession cases.

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