Get a bigger mortgage if you have a greener home, Halifax says
As banks fear rising energy prices will hit borrowers… Halifax’s big idea to sustain the mortgage boom: bigger loans if you have a greener home
Halifax is launching a “green test” that means borrowers with energy-efficient homes can access larger mortgages, The Mail on Sunday is able to show.
The test means the lender, part of Lloyds Banking Group, will be able to assess whether green home buyers may have extra disposable income because their energy bills will be lower. Proof of the excess monthly cash could help them qualify for a mortgage to move them up the apartment ladder or move into a larger home.
The initiative comes as banks scramble to find safe ways to lend to borrowers squeezed by rising energy bills and rising inflation, which last week hit a three-decade high.
Looking ahead: Halifax is launching a “green test,” meaning borrowers with energy-efficient homes who are struggling can access larger mortgages
Banks are wary of lending to borrowers who may not be able to make loan repayments when the cost of living soars. All banks still cap the amount customers can borrow based on their income, often to four or five times their annual salary.
It is understood that the “green test” is designed for distressed borrowers who may break the bank’s affordability test, giving them a greater chance of being able to borrow more.
Homes receive an “Energy Performance Certificate” with ratings from A to G depending on the energy efficiency of the property. Efficient homes with an A or B rating — which includes more than 80 percent of homes built in the last year — will do better on the bank’s “green test” than households facing high gas bills.
Ray Boulger, chief technical officer at mortgage broker John Charcol, said: “If you have lower heating bills it could mean you can get a larger loan on a lower monthly cost basis. The people who will benefit from this initiative are those with greater financial commitments.’
Households face a huge spike in energy bills from April, when the energy price cap is expected to rise by 50 per cent – adding around £600 a year to the average annual bill. Emma Pinchbeck, chief executive of trade association Energy UK, warned last week bills could rise by at least another 20 per cent again in October.
The Social Market Foundation has urged Chancellor Rishi Sunak to give people a “cost of living bonus” to combat soaring inflation and sky-high energy bills. The government is considering a range of options to deal with the so-called “cost of living crisis”, including loans to energy companies.
The Halifax initiative is part of a push by banks to adjust their affordability criteria so customers can still borrow without taking on too much risk.
The rise in the Bank of England’s base interest rate last month has led banks to raise their “stress test” rate to check that borrowers can pay their standard floating rate plus three percentage points. TSB wrote to brokers last week noting that it had increased its stress test by 0.15 percentage point in line with the interest rate hike.
Mortgage interest rates are also rising across the board. Data from comparison site Moneyfacts shows that interest rates on five-year fixed income deals have risen to 2.7 percent from an average of 2.66 percent at the start of the year. The average interest rate for three-year fixed loans has risen from 2.32 percent to 2.47 percent.
There are signs that banks are reluctant to take on too much risky new lending. A source close to Barclays said the lender had hiked rates on some products and cut others to stem the flow of credit. However, some banks offer better rates in certain market segments where they want to increase lending.
Last week, HSBC cut rates on five-year fixed-rate deals from 90 percent LTV to 2.19 percent. It’s also brought back a mortgage rate of under 1 percent for a two-year tracker deal, but only for 60 percent loan-to-value deals — that’s where the borrower has 40 percent equity in the property.
Bank of England Governor Andrew Bailey told MPs last week that higher inflation could last longer than many forecasters had expected. Some economists now believe that the key interest rate could rise to 1.25 percent by November from the current 0.25 percent.
Global demand and supply chain issues are likely to continue, exacerbating food price increases. Bank Goldman Sachs has warned that strong wage growth and higher prices could lead to rising inflationary pressures and put further pressure on living standards.
Steve Webb, a partner at consultancy LCP and a former pensions secretary, warned that older people would be hit particularly hard. He said: “In addition to the rising cost of doing the weekly grocery shopping or filling up a car, pensioners are likely to be particularly hard hit by a hike in council tax bills in April and the rise in energy bills.
“Older pensioners are likely to be hit particularly hard as they may have the heating on for most of the day. The projected state pension increase of just 3.1 percent is far from the true cost-of-living increase most retirees will face this year.
“If no further action is taken, millions of retirees will face real financial hardship and be forced to forego essentials at a time in their lives when they should be relaxing and enjoying themselves.”