Although green mortgages were once a nascent market, in the UK, we’re finally starting to see gradual expansion with the number of available products now reaching close to 60. However, while these growth signs are promising, a significant knowledge gap is still impeding the widespread adoption of these products. Despite both lenders and brokers increasingly promoting green mortgages to consumers, uptake is limited. Many borrowers still associate them with their limited savings compared to traditional mortgages, instead of recognising the products for their role in decarbonising the UK’s housing stock. To truly accelerate the growth of this market, it's clear that more education and clearer guidance is necessary to fill this gap.
The knowledge gap – a barrier to adoption
Often, consumers don’t fully grasp the full range of benefits green mortgages offer. The products are marketed as a driver to create more energy-efficient homes, but the financial incentives are considered marginal in comparison to traditional mortgages. Sellers of homes with improved EPC ratings can see increases in value of as much as 15%. However, this benefit is not always clear to borrowers, and many consumers are unfamiliar with how improving the energy efficiency of their home can save them money in the long run.
In a similar vein, some are still unclear about the criteria to qualify for a green mortgage, which is a factor in low adoption rates. Energy Performance Certificates (EPCs) are key to determining whether a borrower is eligible for a green mortgage, but the way EPC ratings are calculated is typically misunderstood. As such, many consumers don’t know where to start if they want to improve their ratings and qualify for these mortgages. This is supported by research from Legal & General, which found that only one in three consumers ‘clearly’ understand EPCs for determining energy efficiency.
To make matters more complex, there are inconsistencies in how lenders assess energy efficiency, and many use different terms to describe green mortgages. This adds additional complexity and confusion for borrowers.
Collaboration is key to driving progress
Bridging this knowledge gap presents a golden opportunity for lenders, brokers, and the government to work together in their pursuit to improve the energy efficiency of the UK’s housing stock. Lenders and brokers need to start by devoting time to educating consumers about the long-term benefits of green mortgages, not just the short-term financial savings. By highlighting the potential increase in property value, the prospect of lower energy bills, and the positive environmental impact, they can guide homeowners to adopt more meaningful steps toward energy efficiency.
Meanwhile, long-term government support is equally important to sustain these efforts and expand the green mortgage market. Government-backed incentives, such as tax breaks or grants for homeowners who upgrade their EPC rating or take out a green mortgage, could further fuel adoption. Combining these efforts with lender innovation would remove both financial barriers and go a long way to encourage more consumers to take action.
The role of technology
While it may not seem like technology has a big part to play, here, it can still lend a helping hand in supporting lenders and brokers to promote green mortgages more effectively. Digital platforms, data analytics, and AI-driven tools can be used to tailor communications, reaching the right customers at the right time.
Additionally, lenders can use online calculators that show homeowners how upgrading their EPC rating will impact their energy bills and property value, personalising the case for each user. Interactive tools like these not only raise awareness but also empower consumers with actionable insights, driving greater engagement and uptake of green mortgage products.
The path forward
The green mortgage market has huge potential to be a key player in decarbonising the UK’s housing stock, but its potential can only be realised by addressing these barriers and taking action. Better education, government-backed initiatives, coupled with industry standardisation and harnessing digital tools will put the market in a much stronger position to drive adoption and accelerate market growth.
