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Getting Green Finance and Mortgages right with the Home Quality Mark.

We have a great opportunity in linking finance with the quality and sustainability of how we build homes, this should be maximised so we can deliver positive outcomes for consumers, the financial sector, developers and regulators.  The Home Quality Mark is the tool to do this. 

10 years ago the news was full of stories about the financial crises, were the banks going to run out of money? Should we withdraw our savings from them? It was a lesson of caution that hopefully won’t be forgotten too quickly.  Getting personal finance wrong doesn’t just impact a few banker’s bonuses and reputation it also impacts people’s lives.  Mortgage payments or rent and energy bills are usually large portions of household’s outgoings every month, this is becoming acuter in recent times.  Financial institutions, therefore, need to ensure that “Green Mortgages and Finance” protect consumer’s health and financial wellbeing as well as their investment.

Two weeks ago the Government once again signalled its support for “Green Mortgages” in the Clean Growth Strategy which referenced the new Green Finance Task Force.  Now, Government is announcing that it is borrowing to build more homes.  The Financial sector need to protect themselves, and consumers by making sure that the homes built are the best possible homes.  Home Quality Mark, along with its sister third-party certification scheme BREEAM are already recognised by the financial sector when it comes to corporate “Green” investment (more on this later).

The Clean Growth Strategy follows the Innovate UK funded LENDERS project, which was launched over the summer. Interestingly it was launched a week before British Gas followed other energy providers and put up prices, leading Government to launch an enquiring into energy prices.  Many commentators reminded Government, that the best way to reduce bills was to actually improve household efficiency, rather than try and cap energy prices.

The LENDERS project has demonstrated that more accurate predictions of future fuel household energy bills could be utilised in the mortgage process to make better affordability calculations.  This means individual home and family combinations forecast to have lower fuel bills are recognised as having more money available to meet mortgage repayments (whilst leaving an equal level of spending money remaining). The result is higher maximum mortgage offers can be made to these homes where other lending factors are equal, which could vary lending amounts by £11,500 across the EPC (Energy Performance Certificate) “G” to “A” range, or more commonly by around £4,000 for the difference between EPC “E” and “C”. The LENDERS report, and a free fuel prediction tool, can be found at

Delivering quality, healthy, energy efficient homes that work for people.

An energy efficient home done well, should only have positive outcomes for its occupants and the wider environment.  However, we have yet to reach a point where all homes that are labelled as “energy efficient” don’t have downsides.  This is why the Green Finance work, must tie in with Government and Industries work to deliver high quality homes.  Too many people are still buying new homes that don’t meet the mark, with issues such as missing insulation and draught exclusion that doesn’t last a reasonable period.  Homes that are not built to minimal quality levels must not get cheaper mortgages, irrespective of their EPCs.

Delivering quality is a key theme for the Home Quality Mark and an area that is going to be enhanced further in the next update (due Spring 2018), this will help ensure a robust positive outcome for consumers and the financial sector who live in or lend to a household with HQM certification.

The performance gap (i.e. the difference between what is calculated and actual energy use) remains.  The calculation behind the Energy Performance Certificate (EPC) is getting more accurate, but in many ways, it is still undervalued work meaning inconsistency in accuracy continues. And it should be remembered, its purpose is to assess the property alone: The influence of the number and lifestyle of the occupants is normalised, so the EPC alone is not the tool to try and predict real performance as measured.  If financial decisions are made on the homes energy efficiency, we need to make sure that homes are not only performing well on paper – but in reality for consumers.  We do not want to be in the situation where consumer’s mortgages are unaffordable because their homes are not as energy efficient as claimed.  Home Quality Mark looks at the calculated performance in design, how the home is constructed and then how it is handed over to the householder and how the home’s performance is verified in the longer term creating a more robust prediction.

The primary purpose of a home is to provide people with a safe shelter, it, therefore, must be fit for purpose.  We need to protect consumer’s health; Energy Efficient homes can be healthy – but they must be appropriately ventilated, resistant to summer overheating and have good indoor air quality.  This is why the Home Quality Mark, with its independent assessment and certification of performance, is holistic about all these issues, not just energy efficiency.

There are other issues that impact people overall financial outgoings, which are difficult for Government to regulate, but are taken account of in HQM.  A home may well be energy efficient but if its location is away from amenity it is likely that the occupant’s spending is going to be higher due to extra transportation costs.

Green Finance must drive new, innovative techniques and best practise

84% of new homes that received EPCs in Quarter 2 of 2017 gained a fuel cost rating of either A or B.   If Green Mortgages are sold purely on EPCs, the majority of new homes could get a Green Mortgage.  This would make it difficult for those who are trying to differentiate themselves by delivering homes that perform better in practise that the rest of the market.  HQM allows those who are innovating with new techniques, such as offsite construction or smaller SME housebuilders to really showcase their homes and how they can deliver quality and performance in use.  If we get Green Mortgages right, they could be a great way to incentivise better performing homes.  Assessment with third party certification using HQM allows the financial sector to do this.

Less Environmental impact, more resilient to future conditions.

Consumer protection is a key focus of HQM, and like BREEAM, the schemes help the UK deliver on the promises set out in the Paris Climate Change agreement.  According to the Clean Growth Strategy, Homes account for 13% of the UKs Green House gas emission (2015 figures).  Since the 1990 baseline, emissions from homes has reduced by 20% – which is a great achievement by various policy drivers, consumer change and industry action.  Independent certification has already played a  valuable role in this reduction, the Code for Sustainable Homes has driven forward standards and techniques for lighting, heating and hot water emissions and embodied carbon emissions (which isn’t taken account of in the 13%). The Code created a market for products and services that helped deliver low carbon homes, many of these products and services were also used in reducing the environmental impact of existing homes. The same product and services have also been exported across the world, supporting UK jobs and exports.

Homes also need to be resilient to future climatic conditions, which includes flooding.  With an ageing population, we also need more accessible and adaptable homes.  HQM continues the work of the Code in reducing greenhouse gas emissions without impacting local air quality and, making our homes more resilient to climate but is modernised and informed by the latest science and best practice to ensure positive outcomes for all.

Doing it all the above without creating a significant extra burden.

In order to drive change, creating lots of mandatory regulation is usually not the best way to encourage new ways of doing things, it can be seen as a burden.  Minimum regulatory requirements should be simply that – minimum.  Going beyond this should be in a framework that ensures positive outcomes, but is flexible to a degree.  While the framework needs to be robust, the processes shouldn’t create significant extra burden on industry. Instead, it needs to inspire the industry to take ownership of the challenge and its solutions.  The positive carrot-type approach, delivering outcomes for many different stakeholders that HQM fosters,  can bring the outcomes we as an industry are being challenged to deliver.  As a standard developed in the UK for the UK, it uses processes and data that are already part of the housebuilding process in the UK, it then builds upon this to ensure a robust outcome.  It caters for different regulations in the constituent countries of the UK and also works with different local processes and standards.  No other standard can do this.

Joining it all together.

From a consumer protection point of view and a personal finance point of view, we must think beyond one issue.  The Home Quality Mark (HQM) takes this holistic look at housing quality, delivering the best possible outcome for the householder.  HQM goes beyond just looking at energy, it addresses other factors such as overheating, location and process issues that play an important and sometimes overlooked role in helping reduce the performance gap.  The calculation methodology within HQM is designed for homes that are going beyond minimum regulation, thus improving the accuracy.  With the addition of an independent assessor who inspects the home at completion, to check what is said has been done and verify that with evidence, along with accredited third-party certification of that assessment by BRE, a home with an HQM certificate built to the HQM standard holds more weight than standard practice and one without. The next version of the Home Quality Mark (due early 2018) will take the consumer protection one step further.

As mentioned, HQM is already recognised by various financial institutions.  Along with BREEAM, HQM helps institutional investors understand and quantify what is good.  Lloyds Bank, for example, has made HQM a requirement for their green low-interest loans to developers.  A number of asset management organisations are also using HQM to ensure the best possible outcome for their investments in housebuilding – this will be the subject of a future blog.

The Independent certification of the assessment of new home to the HQM standard has a hugely important role in helping ensure green finance does what we want it to for consumers, financiers, industry reputation, our environment and policymakers.