Back in October 2018 we introduced the Barclays Green Home Mortgage. As the first major UK mortgage lender to offer such a product, this represented an important step for the business and laid down something of a marker across the whole mortgage market. The following two and a half years have been interesting to say the least and it seems like an appropriate time to pose the question of how far we, as a lender and as a sector, have come since this launch?
Looking back, whilst our Green Home Mortgage had the fastest uptake of any of our recent product launches, wider market activity has remained somewhat underwhelming. Having said that, this is an area which does continue to pique the interest of borrowers and intermediaries, with many lenders adopting a range of green initiatives.
From a Barclays perspective, our commitment remains unwavering. As a company, we continue to align our financed emissions with the goals of the Paris Agreement, and have set an ambition to reduce those emissions to net-zero by 2050. We are accelerating the transition to a low-carbon economy through our target of providing £100bn of green financing by 2030, and by investing £175m over five years in innovative green companies.
In October 2020, Barclays announced the successful closure of a £400m ‘Green Bond’ issue, the second bond we have issued with a specific intention to support climate-related products and initiatives. The 2020 Green Bond, which matures in 2026, attracted strong institutional investor interest with orders amounting to more than £2bn (an oversubscription of five times).
The funds raised will be allocated towards the financing and/or re-financing of mortgages on energy efficient residential properties in England and Wales originated within the last three years. More than half the funds raised will be allocated to refinance our Green Home Mortgage Product mortgages. In the wake of this, back in May, we widened the availability of this product range to include new-builds purchased directly from the builder or developer to allow more customers to benefit from a reduced interest rate on an energy efficient home. Properties included within this must have an energy efficiency rating of 81 or higher, or fall within energy efficiency band A or B.
Focusing on expectation across the mortgage market, October 2020 also saw the release of an Intermediary Mortgage Lenders Association (IMLA) Green Mortgage report. This highlighted that 74% of lenders expected green mortgages to become a larger part of the wider mortgage market in the future. As many as one in ten advisers suggested that they had already noticed a rise in consumer interest for this mortgage type since the onset of the Covid-19 crisis. In addition, nearly a third (29%) of lenders planned 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.
These findings were extremely encouraging and it would be interesting to see how they compare if these questions were posed again today, especially in light of a raft of activity across the mortgage market. Competition remains key to future growth, so it has been encouraging to see specialist lenders such as Paragon Bank, Foundation Home Loans, Landbay and Keystone Property Finance introduce products aimed at helping landlords to improve the energy performance of their properties and drive standards in the private rented sector. In the residential space, Leeds Building Society released its first green mortgage range, NatWest launched a green remortgage product, Ecology Building Society enhanced its range of green mortgages for renovations Newbury Building Society introduced a ‘GoGreen Reward’ incentive on its self-build mortgage products.
We are seeing a growing number of people integrate environmentally friendly and carbon neutral choices into their everyday lives and there is no question that these choices will impact housing and mortgage options in the near future. However, in order to maintain forward momentum and deliver significant growth, it’s vital for borrowers to realise that green mortgages aren’t a gimmick. They represent an important initiative which needs to be taken seriously and, like any emerging product, requires support from the highest government, policy and lending levels to reach its true potential.
Let’s reiterate that this is marathon not a sprint from an educational standpoint. While the momentum shift may not be as pronounced as some people may have expected in recent years, forward strides are being made and this is a product area which remains firmly on every lender’s radar.
Craig Calder is director of mortgages at Barclays
