Paragon Development Finance will cut exit fees for small and medium-sized housebuilders who develop new domestic properties with high energy performance standards.

The unit, part of Paragon Bank, says that builders delivering homes with an energy performance certificate rating in band A will receive a 50% reduction on loan exit fees.

Energy performance certificate ratings range from A, very energy efficient – lower running costs, to G, not energy efficient – higher running costs.

The average energy efficiency rating for a property in England and Wales was band D in 2019, according to the Office for National Statistics data released in September.

Paragon says for housebuilders to qualify for this cut in fees, at least five private units must be built within the development and 80% or more of these must have an EPC rating of A, with any remaining being at least in band C.

The move comes as world leaders gather for COP26 climate change talks in Glasgow between 31 October and 12 November.

The lender says its initiative is designed to support the government’s target of net zero carbon emissions by 2050 and cut emissions by 78% by 2035.

The Future Homes Standard – established by Department for Levelling up, Housing and Communities Energy – requires new homes built to produce between 75% and 80% fewer carbon emissions from 2025.

The department adds that of the 222,966 EPC ratings recorded for new domestic properties last year, just 3,457 were rated at band A. The vast majority, 81%, were rated at band B.

Paragon Development Finance managing director Robert Orr says: “The direction of travel is clear – we need to start building more homes in the UK that will help deliver the government target of net zero by 2050.

“Many housebuilders are already adopting measures to improve the energy efficiency of their homes and there are early signs consumer sentiment is shifting towards a preference for more sustainable homes.

“However, only 1.5% of new homes last year had the highest EPC rating, so we need to do more.”

Orr adds: “As a key lender in this sector, we also have to play our part and that is why we have launched the Green Homes initiative.

“This delivers a tangible financial benefit to SME developers focusing on building the most energy-efficient homes and we hope that it encourages more developers to drive improvements in this area.”

Paragon Bank lends up to £35m for property development finance projects across England and Wales.