Green mortgage plans could cut the value of your home

Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on the government’s environmental plans, with a concern that green mortgage plans could cut the value of your home.

“The government’s plans for green mortgages could cut the value of older, family homes.

“The plan is to improve the energy efficiency of homes to rating of C – only 40% of them meet this standard today. The government aims to do this by getting lenders to target an average rating of C across their mortgage books by 2030. To begin with, this would be voluntary, but the government is prepared to make binding rules if needs be.

“It means anyone getting a mortgage could be encouraged to borrow extra cash for energy efficiency improvements as part of the deal. The additional cost of this borrowing could technically be covered to some extent by lower energy bills.

“The problem is that while some properties can be improved at relatively little cost, other homeowners will find it prohibitively expensive. They may not be able to afford to borrow more, or the cost of changes to older properties may be disproportionately high, so they’d never recoup the cost of the improvements through a sale.

“Legislation is likely to include some kind of exception, to enable people to get a mortgage on these homes. However, it’s likely to get much harder to track down a cheap mortgage for an inefficient property, which will make them more difficult to sell, which in turn is likely to bring down their value. Owners may also struggle to remortgage, so could end up paying over the odds each month.

“In fact, when the government consulted on green mortgages, it baked some of this into its assumptions, saying ‘the market will adjust’, so inefficient properties become cheaper, and people can afford to buy them and improve them. This may make sense from an economist’s point of view, but if you’re currently living in one of these homes, and you face the prospect of it losing value, the consequences could be devastating. If you’re living in an old family home, and you need to trade down to boost your income in retirement, it could have far-reaching consequences for the rest of your life.”

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay