Energy-efficient homes undervalued by mortgage lenders

Energy-efficient homes could increase in value if banks and building societies used more accurate estimates of household energy bills in their mortgage calculations, a new report has found.

Under the Mortgage Market Review (MMR), lenders are required to assess what repayments a customer can afford considering both their income and major expenditures. This includes energy bills which make up approximately 7.2% of an average person’s outgoings.

The UK Green Building Council (UK-GBC) found that mortgage lenders could “significantly improve” their costing estimates by using readily-available data such as the Energy Performance Certificate (EPC) of the property.

A more accurate approach would reduce lender risk, the report claims, and would also boost the relative value of efficient properties as they would be more easily able to obtain mortgage finance.

According to modelling from UK-GBC and UCL, lenders’ current approach for estimating energy costs can be inaccurate by as much as £45,000 over the course of a 25-year mortgage for a relatively efficient modern home.

Market inefficiency

Study co-author and UK-GBC senior policy advisor Richard Griffiths said: “Government wants lenders to be more responsible, yet this work shows that they are currently failing to account for the likely energy costs faced by would-be borrowers. As a result lenders are potentially lending more money than buyers of inefficient properties can truly afford, and vice-versa for efficient properties.

“If banks took some quite straightforward steps to address this – by including data on properties’ energy efficiency and making more accurate estimates of their likely energy bills – they would reduce the risks associated with their lending, while helping to create the conditions that would see energy efficient properties rise in value compared to their inefficient counterparts.

“One important consequence of that is that would-be purchasers would be incentivised to buy efficient properties, and existing homeowners would see the value of their homes increase if they took steps to retrofit them. In the context of Government having recently cut support for the Green Deal in the face of low demand, this could be an important development for the industry and policy-makers.”


Energy-efficient housing in the UK has taken a hit in recent months as the Government have yet to deliver a replacement for the Green Deal, and also scrapped zero-carbon regulations for new homes back in July.

However industry groups such as the Building Research Establishment (BRE) are fighting back, having recently introduced the Home Quality Mark standard to help house-buyers make informed decisions about the green credentials of their homes.

A house built in August in Yorkshire showcased the potential for green UK buildings, powering itself and two neighbours through a system of solar PV panels and battery storage.

Brad Allen

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