Environmental concern is high on the political agenda
Plans to make UK homes more energy efficient through new “eco-loans” could help to push up property prices but reduce the size of mortgages buyers can borrow, according to property market experts.
The government plans to allow homeowners to borrow money to fund the upfront costs of eco-upgrades, such as the installation of solid wall insulation, heat pumps and solar panels. Instead of paying for the energy efficient work upfront, homeowners will be able to take out a long-term loan, with repayments made through a pay-as-you-save mechanism. The loans will be designed so the repayments are less than the amount the borrower saves each month on energy bills, producing a monthly surplus.
This means that anyone living in a house that has had energy efficiency work done could make money out of the process even while the loan is being paid off. The government acknowledged that although efficient homes were cheaper to run, this had not yet been reflected in house-buyer demand or property prices.
“A price differential between energy efficient and inefficient homes, coupled with the added prospects of lower fuel bills, would offer homeowners greater incentive to invest in energy efficiency measures,” it said.
It has asked the Royal Institution of Chartered Surveyors (RICs) to develop recommendations for both government and property professionals “so that the energy performance of a property starts to be better reflected in its market value”.
A spokesman for RICs, said the recommendations would include drawing up standards for the energy saving equipment and for those installing them.
“Although solar panels and wind turbines are available, we have no idea how long they might last before they need replacing,” the spokesman said. “You need some kind of reassurance about their quality and a register for the installers, before installation will feed through into property valuations.”
One potential sticking point is that the new loans will be attached to the properties involved. If a borrower sells up before the loan is paid off, the loan will have to be paid by the next owner. Some mortgage experts fear this could have the effect of reducing the amount buyers can borrow when taking out a mortgage.
Lenders have not yet been consulted on the proposals. A spokesman for the Council of Mortgage Lenders said: “Environmental concern is rightly high on the political agenda, but even so, the new financing initiative needs to be considered carefully before being implemented.
“If pay-as-you-save is to be secured against the property and transferable to future owners, this raises questions about how the conveyancing process may have to change to identify and report the existence of such loans, and there is also a question about whether the loans will be regulated.”
The government’s strategy also includes proposals for regulation to force landlords to install standard loft and cavity insulation measures as a condition of renting out property in the future, but no sooner than 2015. This could involve using a Landlords’ Register to help local authorities identify rented property in their areas and linking that with information on energy efficiency.
