More and more high street lenders will be factoring in energy efficiency/EPC ratings when they calculate mortgage affordability in 2025.

Energy Performance Certificates (EPCs) are required for all UK homes marketed for sale and rental and are used to demonstrate the energy efficiency of a property, using an A to G rating system, along with their average running costs. The EPC will also list a applicable recommendations for the property along with the typical savings that upgrading the property could achieve.

Those living in homes with EPC ratings of A or B will typically be spending much less to heat their property, which means they may have more disposable income. In contrast, those living in similar sized homes with an EPC rating of E, F or G are likely face higher energy bills, which could negatively impact monthly outgoings.

Lenders such as Lloyds, Halifax and Bank of Scotland are now factoring this into their affordability assessments, which are used to determine how much can be borrowed when purchasing or remortgaging a property.

The Lloyds Bank website states the following in relation to including EPCs in affordability calculations:

We can better reflect the impact of home energy costs, and some of the financial benefits of more energy-efficient homes. You might then receive a higher loan amount if the EPC is an A or B rating. Or, you might receive a slightly lower loan amount if the rating is F or G.

This is because for houses with a lower EPC rating your energy bills are likely to be higher and so your outgoings will be higher. This will impact the size of the loan you can afford to repay.

Green Mortgages and EPCs

The use of EPC ratings in affordability checks is not, as yet, used by all UK lenders. However, It is worth noting that some lenders are offering preferential rates or terms for homes which are more energy efficient. This is what is commonly known as a ‘Green Mortgage’

In theory, a green mortgage is there to incentives home buyers to invest in a more energy efficient home, which will not only give them a monthly saving on their energy bills but will also give them a favourable interest rate.

Many high street lenders offer a green mortgage of some description, whether it be preferential interest rates, or green cashback schemes for those purchasing a property with an EPC rating of A or B.

However, an article published this month by the Money Saving Expert, has found that although green mortgages do offer slightly better rates in comparison to non-green mortgages with the same lender; when looking at the wider market this may not be the case.

Elmhurst’s Technical Development Director, Andy Parkin Comments: “Including EPCs in affordability calculations demonstrates that lenders are becoming more mindful of the energy efficiency of their housing stock. Naturally, this elevates the importance of having an accurate and up-to-date EPC to accurately reflect a property’s current energy performance. While we’ve seen increasing attention around green mortgages, this product offering is still in its early stages. We hope that, over time, more impactful incentives will be introduced to encourage individuals to invest in homes with higher EPC ratings or giving new owners the means to improve their new home”.

Related Links

https://www.moneysavingexpert.com/mortgages/green-mortgages/
https://www.lloydsbank.com/mortgages/help-and-guidance/eco-home-hub/how-to-get-an-epc-rating.html