The government wants all lenders to annually disclose portfolio-wide EPC data as well as the gross value of lending for energy improvement works. This will enable comparisons to be made between lenders and provide a picture of how energy performance ratings could influence lending decisions.

But IMLA has warned the proposals could lead lenders to spend ‘disproportionate time and effort’ ensuring average energy ratings were at an acceptable level.

The trade body said while it recognised the importance of addressing climate change and lenders role in this, it was also concerned the compilation of an energy efficiency ‘league table’ could cause lenders to base their lending decisions on a property’s energy efficiency, rather than on a borrower’s needs.

The proposals form part of the Department for Business, Energy & Industrial Strategy’s (BEIS’s) latest consultation on Improving home energy performance through lenders, which closed on 12 February.

In its response, IMLA rejected the clear implication that lenders, rather than property owners, were responsible for the energy efficiency of the properties mortgaged to them.

It argued for a thorough review of Energy Performance Certificates (EPC), to ensure that they were accurate and fit for purpose.

It went on to suggested property owners should be required to obtain an EPC and that all inspections should be carried out by appropriately qualified assessors, with the results held on a central, easily-accessible database.

IMLA also noted it was unclear from the consultation whether the mortgage market’s regulatory bodies, the FCA and PRA, had been fully consulted about the proposals and pointed towards work already conducted as part of the regulators’ Climate Risk Financial Forum.

IMLA said more joined-up thinking was needed in order to avoid the creation of policies that caused firms to breach requirements imposed on them elsewhere.

Green mortgages

Kate Davies, executive director of IMLA, said lenders were already taking the challenges posed by climate change very seriously, and many had made significant moves to understand and prepare for the most immediate risks posed by our changing climate.

What’s more, she said they also recognised the important role the mortgage market had to play, with a growing number now offering ‘green mortgages’ to incentivise consumers to improve their property’s energy efficiency.

Artificial competition

However, she thought these latest proposals were unlikely to bring about real change.

“Rather,” Davies said, “they would oblige lenders to devote way too much time compiling and disclosing data in an exercise which – at the end of the day – won’t change a single low-energy lightbulb.

“It makes more sense to ensure that property owners have really accurate information about the energy efficiency of their property – and the best place to start is by ensuring that EPCs are really fit for purpose.

“If a property’s energy efficiency is reflected in its value, homeowners will be incentivised to make improvements – which can be financed by a combination of loans, for those who can afford them, and government grants to help those who cannot.

“It makes no sense to create artificial competition between lenders which could result in their avoiding lending on properties that are less energy-efficient and therefore less desirable. In the worst case this could lead to some borrowers being unable to re-mortgage or sell. It is critical that this is avoided.”

IMLA thought the challenge of achieving net-zero carbon emissions by 2050 would not be helped by creating a ‘distracting paperchase’ for lenders or imposing penalties if they didn’t meet targets.

“Reducing our carbon emissions will require rather more fundamental cross-departmental thinking on where responsibility lies and how real change can be incentivised and encouraged,” Davies added.

“It will also need major investment to drive energy efficiency in the UK’s existing housing stock.  These latest proposals from BEIS fall far short of the ambition needed.”