UKGBC - Together for a better built environment 1

Building a green mortgage marketTuesday 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 –

13.30EeMAP 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 FarStephen 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

ResearchUpdated

Proposals

for Pilot

PhasePublic

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

operational 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

17

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

onto their 2nd or more mortgage 54% 54% 48%

Multiple mortgage holder

2 or more mortgages 27% 22% 34%

18

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

Import

ance

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

20

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

out 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)

21B3. 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 propositionAll 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

22B2. 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 propositionAll 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%

23

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 propositionAll 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

of 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

only 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

24 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

BarriersAll who do not find the EEM appealing

Do not want to take out / cannot

afford an additional loan18%

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)

25 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 hassle10%

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%

BarriersAll who do not find the EEM appealing

All other barriers under 6%

Most important reason (select 1 only)

26 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

FinanceGetting a lower interest rate

on your mortgage, and saving

money in the long term

What is driving appeal?All who find EEM appealing

EnergyBringing down the cost of your

energy bills, and making your

home more warm and comfortable

PropertyIncreasing the value

of your property, and

making it easier to

sell

Home improvementGetting a competitive loan for home

improvement purposes

GreenReducing your carbon footprint

1

2

3

45

Consistent across

markets

Most attractive aspect (select 1 only)

27

Appeal of Installation options A & BAll 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=447T3B / 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

28

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

29

…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

other 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

occupiers 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

ones.

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 proposalsMortgage 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 marketTuesday 20 March

AECOM, Aldgate Tower

#GreenMortgages