Buy-to-let lenders are looking to future-proof their mortgage portfolios by reassessing how they lend against properties with lower energy efficiency, research from Cotality has revealed.
The government is legislating to enforce a minimum energy performance certificate rating of band C on all properties starting a new private rental tenancy agreement from 2028 and for all private rented homes from 2030.
If deadlines go ahead, it means landlords now seeking a five-year fixed rate buy-to-let mortgage secured on a property with a EPC rating below band C could be refused a mortgage before these net zero deadlines hit.
To address this, Cotality found some BTL lenders are laying the groundwork to ensure they limit their own exposure to “net zero risk” when approving loans.
Meanwhile, others plan to integrate with more “dynamic data sources” for new BTL lending and refinance to help modernise how they assess property-level environmental risks and energy performance.
Cotality UK chief operating officer, Mark Blackwell, said: “There is a clear desire in lenders to act to mitigate the impact of climate change, starting with the climate risk sitting on their own loan books.
“There’s an imminent regulatory deadline that requires them to do it, but during our research we found that without more robust data inputs and better access to model scenarios, many aren’t as far on as they want to be.
“There are ways to address this and our research highlighted that lenders are taking a wide range of approaches.
“What was common to all though, is that meeting the challenge of net zero is not straightforward, and it will require the co-operation of all parts of the market to achieve it in such a short time.”
Cotality’s report also found some lenders have not fully worked out how net zero deadlines will affect their future lending appetites.
Furthermore, a significant proportion of BTL lenders admitted their access to this type of data was still too “patchy” to allow them to make well-informed enough decisions.
tom.dunstan@ft.com
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