Hinckley & Rugby Building Society teamed up with Digital Buildings and Legal and General Mortgage Club to launch Retrogreen – a product to support homeowners with energy-efficient home improvements.
The service gives homeowners personalised information about their property, including specific measures and costs needed to improve its Energy Performance Certificate (EPC) rating.
Laura Sneddon, head of sales and distribution at Hinckley & Rugby Building Society, Jane Simpson, strategic relationship manager at Legal and General, and Colin Calder, CEO and co-founder of Digital Buildings, discuss the need for retrofitting the UK’s housing stock and how this new launch can address this.
What is retrofitting, and why is this important for the UK mortgage industry?
Calder: New-build properties are generally energy efficient, but this is not the case with older properties – with around half of the UK housing stock having an EPC rating of D or lower. The UK is working towards ambitious climate targets, and retrofitting properties to improve energy efficiency will be important.
This is a particular issue for the private sector, as there has already been substantial investment in the social housing sector to improve energy efficiency. We need action from lenders to support homeowners, helping them finance what can be costly improvements. This will not only help reduce the country’s carbon emissions, but should mean warmer and better-insulated homes.
Mind over mortgages: why we need to look after intermediaries’ mental health
Sponsored by Halifax Intermediaries
Why have UK homeowners and landlords been slow to embrace retrofitting?
Simpson: Retrofitting can be a complex process. Understanding which upgrades will be most suitable and deliver the most significant improvements can be tricky; a property owner could install a heat pump, for example, but won’t necessarily see their EPC rating improve without making other changes.
Sneddon: There is also a knowledge gap. People are still unsure about new technologies like heat pumps, and aren’t convinced they’ll perform as well as traditional boilers. There’s a lot of work the industry needs to do to inform homeowners, landlords, and the broking industry about what these upgrades can mean in terms of comfort and savings on energy bills.
Calder: Allied to this is the cost challenge. We’ve run thousands of property assessments, and the average cost of bringing a home up to an EPC C rating is between £32,000 and £38,000. That’s a significant outlay, which may take more than a decade to recoup in terms of annual savings on heating bills. In today’s economic climate, people are understandably hesitant to spend that much without a clear shorter-term return on their money.
How is Hinckley & Rugby Building Society addressing these challenges with its Retrogreen product?
Sneddon: Partnering with an independent specialist ensures homeowners are supported. Digital Buildings can provide a detailed plan to improve a property’s EPC rating, including a breakdown of costs, likely savings, and quotes from pre-vetted contractors. There’s also a post-work evaluation to ensure the contract has been carried out to the required standards.
When it comes to the financing element, we want to ensure homeowners get competitive mortgage rates. These fixed and discounted deals don’t just apply to the additional funds being borrowed for home improvements; they apply to the whole mortgage.
We want to incentivise homeowners to improve energy efficiency to make a more substantial impact when it comes to tackling climate change.
Calder: This approach – a discount on your entire mortgage – means the money borrowed for retrofit improvements effectively becomes interest-free. As a result, we are now having very different conversations with consumers, because why wouldn’t you want to be more comfortable, with cheaper bills and without paying anything extra on your mortgage rate?
What role do brokers play in promoting green mortgages?
Simpson: Brokers are often the link between borrowers and lenders. However, their main duty is to find and recommend a financial product for their client. We wouldn’t expect brokers to have detailed discussions about heat pumps or wall insulation – this is for specialists like Digital Buildings.
But many will want to have discussions around the benefits of energy efficiency, particularly as the regulatory and political landscape starts to shift. For example, brokers will need to consider the long-term mortgageability of properties with low EPC ratings, particularly if they are on longer fixed term loans. This may initiate a discussion about the need for future energy-efficiency upgrades, the potential costs, and mortgage solutions to avoid issues further down the line when refinancing.
How is the regulatory backdrop changing?
Calder: It’s clear this is a key issue for Labour. The previous Conservative government initially proposed that commercially let properties would need an EPC C rating. This was dropped, but we expect to see it back on the table, potentially with a 2030 deadline. Regulation is likely to start in the private rented sector (PRS), but we could see changes in the residential sector follow, with more homeowners encouraged or required to upgrade their homes.
How do we motivate homeowners to invest in retrofit measures?
Simpson: This can be a challenge. A new kitchen or bathroom has a ‘wow’ factor that perhaps isn’t replicated with a heat pump. This is where lender support is crucial, via financial incentives, as this can create tangible benefits through competitive mortgage rates, savings on energy bills and a potential increase in the property’s value.
Sneddon: People spend a lot of money upgrading their properties. We want to make sure they also think about energy efficiency as part of this process. A lot of this is about timing. If you know you might put in a new kitchen in the next few years, it’s about getting the insulation done first so you don’t have to redo the kitchen should the regulatory landscape change. There’s a lot of knowledge-sharing needed across the industry to help people plan these improvements more strategically.
