The increasing trend among lenders to incentivise energy-efficient homes by offering borrowers higher loan-to-value (LTV) ratios could have profound implications for the UK housing market, according to Arbuthnot Latham.
If widely adopted, this approach has the potential to alter buyer priorities, influence property values, and create new opportunities in the market while also posing challenges for certain homeowners.
James Glover, head of regulated lending at Arbuthnot Latham, said: “If broadly implemented, less energy-efficient homes could rapidly lose their appeal, especially among first-time buyers, who often prioritise affordability and higher LTV ratios.
“Without first-time buyers, this sector of the housing market risks stagnation, leading to price declines as sellers with limited options lower the price to attract buyers who can afford to purchase less efficient properties and finance renovations to improve their Energy Performance Certificate (EPC) without the need to borrow.”
While energy efficiency is unlikely to displace core buyer priorities such as location, price, or specific property features, strong financial incentives could push it higher up the agenda. This shift could potentially come at the expense of other “nice-to-have” attributes, such as high-end finishes or additional amenities.
The rise in energy efficiency as a key consideration may also open doors for property developers and buyers willing to take on renovation projects. Glover observed:
“The UK’s property development sector could benefit significantly from such incentives, allowing professionals and individuals with the skills or resources to purchase, upgrade, and resell less efficient properties at a profit.”
However, the shift toward energy efficiency is not without challenges, particularly for owners of older properties. Glover noted: “As with all new initiatives, there will inevitably be those who miss out, and it’s likely that owners of older properties, particularly older homeowners, would be among those most affected.
“Older properties often face challenges that make achieving modern energy efficiency standards impossible, impractical, or prohibitively expensive.
“Many prestigious London addresses, for example, are located in conservation areas, where even basic improvements, such as replacing windows, require special planning permission.
“These requests are often denied, and when approved, the associated costs can be significant due to restrictions on materials, approved styles, and permitted manufacturers.
“As a result, the savings on energy bills often fail to offset the upfront expense of making these changes.”
Older homeowners may face additional hurdles as energy efficiency increasingly factors into lending decisions. Glover highlighted the impact on later-life lending products, such as equity release and lifetime mortgages:
“Lenders often use similar security assessments to high street mortgage providers, meaning restrictions on less efficient properties could significantly limit access to equity for older owners.
“This could force some to use their equity to fund home improvements rather than supplement their retirement income, or in some cases, leave them needing to sell their properties to unlock the value tied up in their homes.”
