Government intervention critical to the future of the green mortgage market, research from IMLA shows

19 October 2020

  • 74% of lenders expect green mortgages to become a larger part of the wider mortgage market in the future
  • But they believe government intervention will be vital as customers face significant barriers—27% of homeowners say the cost of improving their home’s energy efficiency is prohibitive

Demand from consumers for green mortgages is set to grow but government intervention to stimulate the market will be critical to its future, new findings from the Intermediary Mortgage Lenders Association (IMLA) suggest. In its latest report, Green Mortgages, IMLA’s research has found that (74%) of intermediary lenders expect the green finance sector to become a larger part of the mortgage market in the future, while one in ten advisers (13%) have already seen a rise in customer interest for green mortgages since the start of the Covid-19 crisis.

IMLA’s research, which involved surveying lenders, brokers and consumers, shows that there is already great potential for the green mortgage market to become increasingly important for borrowers. One in five homeowners say they’d be willing to pay an extra £100 a month for a mortgage if it helped to lower their carbon footprint. This interest from customers is largely driven by the opportunity to save money on energy bills (53%), but 43% also want to take out these products in a bid to feel that they are doing their part to save the environment.

Lenders and advisers are responding to this demand from consumers, too. Nearly a third (29%) of lenders plan to or have already launched a green mortgage product, while a similar percentage of intermediaries (35%) also intend to advise clients on green mortgages in the future.

Kate Davies, Executive Director, IMLA, comments:

“Green mortgages might be in their infancy, but the indications are there that this is a part of the mortgage market that is set to grow in the years ahead. Lenders and advisers are already recognising the opportunities presented by green mortgages as consumers ‘switch on’ to eco-friendly products and recognise the devasting potential of climate change. Now, with a Covid-19 lockdown giving us all a temporary view of a world with reduced carbon emissions, the growth of the green mortgage market could accelerate yet further.

“With this latest research, IMLA has taken an in-depth look at this new sector of the mortgage market to understand its potential and the possible barriers to the future growth of green mortgages.”

The research uncovered several barriers facing consumers which could restrict the potential of the green mortgage market. The sector is currently just a small part of the mortgage market and awareness about green options remains low—43% of borrowers say they have never heard of a green mortgage. Misperceptions are also rife—a third (33%) of homeowners expect green mortgages to cost more than a typical product. However, more than three quarters (77%) of lenders have or plan to launch green mortgages that are either cheaper or which cost the same as a ‘standard’ mortgage.

More than a quarter (27%) of homeowners in the UK say that affordability was also a problem, noting the significant costs of improving their property’s energy efficiency. Last year, a report by the Committee for Climate Change suggested that there are around 29 million homes in the UK which require adaptations to make them low-carbon, low-energy properties.

The renovation of these properties will be key to the UK delivering on its commitment to being a carbon-neutral country by 2050. Reflecting on this, lenders and advisers all deem government intervention as critical to the future of the green mortgage market. Nearly three-quarters of advisers (71%) and lenders (74%) would welcome intervention in the form of financial incentives for consumers, such as those recently announced by the Chancellor as part of the Government’s Green Homes Grant programme. However, more than half (52%) of both groups also wanted to see more in the way of incentives for lenders to encourage more providers to offer green mortgages. A small number, just 13% of lenders and 6% of advisers, would welcome more radical intervention in the form of restrictions on the sale of inefficient homes.

Kate Davies concludes:

“Despite the potential for green mortgages to be an ever-present option for customers, the issues and barriers surrounding these products are much wider than the UK mortgage market. The Government has already committed to making Britain a carbon-neutral nation by 2050. Upgrading the UK’s existing housing stock, to make homes across the country more energy efficient, will be critical to that goal.

“Green mortgages will have a role to play in this journey, incentivising consumers to make home renovations. Many lenders are already including green mortgages or eco-initiatives in their future plans, too. However, Government initiatives like the Green Homes Grant clearly remain vital, as does a broader approach to tackling ethical and sustainable business practices with the creation of more energy efficient homes, jobs, public transport upgrades and sustainable city-planning projects.”

View IMLA's publications »

Nick Seymour, Rostrum
Tel: 07551 129 500

Notes to Editors

About IMLA

The Intermediary Mortgage Lenders Association (IMLA) is the trade association that represents mortgage lenders who lend to UK consumers and businesses via the broker channel. Its membership of 43 banks, building societies and specialist lenders include 18 of the 20 largest UK mortgage lenders (measured by gross lending) and account for about 90% of mortgage lending (91.6% of balances and 92.8% of gross lending).

Back to News