Green Mortgages: Assessing the Feasibility of Success in the UK

Publication Date	June 2008
Publisher	Datamonitor
Product Type	Report
Pages	15
ISBN Number	not applicable
Product Code	DAT12735

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Summary

Introduction

While green mortgages have been available from specialist providers for over ten years, a renewed emphasis on the environment by the government, coupled with increasing uncertainty over the global climate, has prompted many institutions to review the opportunity for environmentally sound financial products.

Scope

Assesses the market opportunity for green mortgage products in the UK
Compares the different types of green mortgages
Provides a detailed analysis of green mortgage products available in the UK market

Highlights

In the UK, demand for 'green' financial products has grown significantly. Recent Investment Management Association (IMA) data shows ethical funds under management in the fourth quarter of 2007 reached 5.9 billion, an increase of 18% over the same period in 2006.
There are but a handful of lenders that offer a green mortgage product. Out of a total of 120 active lenders, only five offer a true green mortgage: a staggeringly small 4% of the market.
Most green mortgage lenders are small building societies. However, in 2007 both Abbey and HBOS stated that they were in the process of launching a green mortgage in 2008, following Gordon Brown's budget speech on lenders' offering home buyers incentives to go green. As of yet, neither institution has launched the green mortgage.

Reasons to Purchase

Understand the potential for green mortgage products and adapt your product strategies accordingly
Compare your green mortgage offering with that of your competitors
Learn about the factors hindering the growth of the green mortgage market and what can be done to overcome these

Report Buyer Review

"The mortgage market is said to be driven by price. This study looks in particular at a green mortgages. This type of mortgage aspires to reduce the damaging impact on the environment. At present the number of lenders providing this service stands at five. However the potential of this market is great, as financial green products had made £5.9 billion in Q4 2007. "

Reviewed by NS, 07 Sept 2008

Content

CATALYST
SUMMARY
ANALYSIS
- Increased awareness of environment change has boosted demand for green products
- Governments across the world are under pressure to reduce their countries' impact on the global environment
- The UK has proposed one of the most ambitious targets to combat climate change
- Energy efficient housing is one of the key measures that the UK government is hoping will achieve a reduction in emissions
- Mandatory energy performance certificates are now required for every residential property in the UK, as part of the requirements of a Home Information Pack
- The UK banking market offers a range of green-friendly products
- Consumers adopted more ethical banking products from 2006 to 2007, growing the business by 11%
- Ethical investments are still the largest and most popular green financial instrument
- While there is a standard definition of a green mortgage, the product takes many different forms
- Mortgage lenders offer various types of green mortgage
- The market for green mortgages is still small, despite a slight increase in popularity
- Most green mortgage providers are small lenders
- Typically, a lender's green mortgage product will be more expensive than their best mortgage offer, although in some cases discounts are offered
- While category 1 lenders have enjoyed some growth, category 2 lenders' green mortgage books remain steady
- Green mortgages remain niche internationally
- Financial services companies abroad are more creative in their approach to offering green mortgage incentives
- Green mortgages are likely to remain a niche product
- The UK mortgage market is driven by price
- History demonstrates that higher-priced, non-standard mortgage offers do not perform well in the UK market
- The green proposition is likely to provide a competitive advantage to lenders if a customer has to choose between two similarly priced products
- There is limited demand for green mortgages
- The green mortgage product appeals only to a limited segment of the market
- Green mortgages do not appeal to first-time buyers
- In the current market, second and third homebuyers are opting for the lowest priced mortgage products
- Very few lenders offer the product, thus limiting supply and product choices
- Market uncertainty is shrinking non-standard product portfolios
- Few mortgage brokers are aware of green mortgages
- Widespread uptake will require government and institutional commitment
- Some incentives have been put in place but the market view is that they are not enough
- Proposed government initiatives to encourage greener living will drive demand for green mortgages
- Sustained co-operation between lenders and the government is needed to grow the green mortgage market
- Some European countries have successfully implemented incentive schemes to boost green housing
- The UK needs to stimulate greater awareness of green building among the general public
- Consumer education is key
- Definitions
- Green mortgage
- Methodology
- Further reading
- Ask the analyst
- Datamonitor consulting
- Disclaimer
LIST OF TABLES
- Table 1: Amount held in ethical finance, 2006-07
- Table 2: Selected green mortgage offers in the UK market
- Table 3: International green mortgage offerings
LIST OF FIGURES
- Figure 1: Fund investments are the simplest and most valuable area for financial services companies to launch green propositions