Dear Chancellor of the Exchequer,
Re: A fiscal measure to drive demand for retrofitting and support the UK’s green home finance market
The finance sector stands ready to reaffirm the UK as the pre-eminent market for green finance. Alongside your announcement of a world-first Green Savings Bond we, the top UK mortgage lending institutions, believe that more can be done to give the public an opportunity to do their part. One of the biggest near-term opportunities is in greening the mortgage market and in doing so delivering on the build back better agenda. The UK finance sector is ready to fund the widescale decarbonisation of UK buildings, with over 16 mortgage lenders launching a green mortgage product since 2018. However, the limiting factor to market growth remains the extremely low levels of demand for retrofits.
As homes are responsible for 23% of the UK’s total emissions1 , structural reform of the housing market, where energy performance is reflected in property prices, is essential to drive demand for energy efficiency improvements and crowd-in private finance. Grant schemes have an important role to play, but on their own cannot be relied on to create and sustain a thriving retrofit market. That is why we are writing to encourage you to consider the introduction of a fiscal incentive to stimulate demand for energy efficient homes and galvanise the UK’s green home finance market – an energy-adjusted Stamp Duty Land Tax (SDLT).
An energy-adjusted SDLT provides a long-term structural driver that can embed energy efficiency, low carbon heating and climate resilience in the decision-making process of homebuyers. This will drive a value differential in the property market in favour of homes with better energy and emissions performance, creating an additional incentive for homeowners to retrofit their property. Importantly, an SDLT incentive can be designed to be revenue neutral to HM Treasury and structured to ensure that this continues, irrespective of how fast the housing stock’s energy efficiency improves. Further information on the policy and economic impact of this fiscal measure is available in a recent report by the UKGBC2. Grants would still be available for those unable to pay and with this added measure the Government’s net-zero targets are more achievable, as is bridging the £250 billion investment gap1.
As financial institutions who actively fund the UK’s housing market, we recognise the opportunities an energy- adjusted SDLT offers – both to support domestic market growth and global leadership in green home finance. In the near term, an SDLT incentive will galvanise demand for retrofitting and build confidence amongst lenders to innovate green financial products. Over the long term, the trend towards energy efficient homes will embed a sustainable price differential, reduce the systemic risk to financial services from stranded assets, and establish a world-leading green home finance market that can be exported globally.
While an energy-adjusted SDLT is not a ‘magic green bullet’ and needs to form part of a comprehensive policy and funding landscape, it does represent a powerful driver of sustained consumer demand for energy performance improvements. We, the financial services sector, are primed and ready to fund this increased demand and, with the UK Government hosting COP26 this year, the time to act is now.
Rhian-Mari Thomas CEO
Green Finance Institute
Group Managing Director, Retail Finance
General Counsel and Secretary
Coventry Building Society
Ecology Building Society
Green Finance Institute
Head of Wealth Management & Insurance
Group Director, Retail Bank
Lloyds Banking Group
Chief Operating Officer
Monmouthsire Building Society
CEO, Retail Banking