Changes to lending practice in the United Kingdom – Beware!

The Climate Change Act commits the UK government by law to reducing greenhouse gas emissions by at least 100% of 1990 levels (net zero) by 2050. This includes reducing emissions from the devolved administrations (Scotland, Wales and Northern Ireland), which currently account for about 20% of the UK’s emissions.

It is now a requirement that any house being rented or sold in the United Kingdom must have an Energy Performance Certificate (EPC).  This must be obtained from a licenced energy assessor and must consider the following criteria:

  • The amount and quality of insulation (wall cavity, underfloor and ceiling)
  • Hot water – the cost of heating and insulation of the tank
  • Home heating
  • Window insulation (double glazing, draft proof)

The property is then assigned a rating from A to G. 

House under construction

My cousin’s son works for Danske Bank in Belfast, and they are currently the largest mortgage lenders in Northern Ireland. 

Danske Bank has introduced a sustainability policy with regards to mortgage lending which aims to support “environmentally and socially responsible practices”. 

Presently, Danske Bank offers “green mortgages” at lower interest rates to homes which have energy ratings from A to C grade.    

Each property is also assessed for its long term climate risks, including its vulnerability to extreme weather events and the long term sustainability of the property. 

The current position of Danske Bank is that they wish to have mortgage lending prioritised to properties with higher EPC assessments and are currently very reluctant to lend against properties with lower ratings, or properties that are at risk of climate related events.  The bank is working to get ahead of any legislative requirements that are likely to come forth at some point in the next decade. 

I have verified all of this information from the Danske Bank website ( and from financial media websites and I found out about the components of the EPC reports from Wikipedia

As I discussed with my cousin’s son, the medium term effect of this will be that the lower rated properties will be more difficult to sell as it will be harder to get mortgage finance, and accordingly their market value will decrease.   It will also make it difficult to get mortgage finance in areas that are deemed to be at risk of an extreme weather event.  Northern Ireland does not seem to have the extreme weather events that we are seeing in NZ, but they are seeing more regular high tide flooding in some coastal villages around Strangford Lough.  These picturesque little villages are very popular (and relatively expensive) places to live. 

Extreme weather event

My initial thought was “oh my gosh!!!!!  If they are already doing this in Europe and the United Kingdom, how long before it becomes the norm here in NZ?!?”.    This will have a massive impact on many home owners. 

I would encourage you to consider these criteria when buying your next home.  The worst case scenario would be to find yourself with a home that you will have to sell at a discounted price at some point in the future. 

Janet Natta is a financial adviser and director of Smart Money Advice, offering investment portfolio construction and management services to clients throughout NZ, as well as comprehensive financial planning advice to assist clients to build and protect wealth to achieve their dreams.

DISCLAIMER: The information contained in this article represents the views of the author. It is based on information believed but not warranted to be correct.   Any views or information, whilst given in good faith, are given with an express disclaimer of responsibility and no right shall rise against any of the authors or Smart Money Advice or their employees either directly or indirectly out of any views, advice or information.