The FCA’s view of green mortgages

On April 19, 2023, David Geale, Director of Retail Banking at the FCA (Financial Conduct Authority), delivered a speech at the London Institute of Banking & Finance mortgage conference in which the Director generally discussed green mortgages and the FCA’s expectations in this context.
The Director began his speech by elaborating on what green mortgages are, namely mortgages granted to customers that provide incentives for clients to purchase homes that are energy efficient with litte emissions – e.g. by offering reduced interest rates for energy efficient homes.
Mr. Geale went on to emphasize that offering such green loans is essential for the decarbonization of homes and thus ultimately for protecting customers, particularly in view of the fact that more than 60% of UK houses are still energy-rated D or below. Without accelerating the decarbonization of mortgage housing and sufficiently influencing borrowers, the UK will not be able to reach its net-zero goal by 2050. Therefore, Mr. Geale urged financial institutions to live up to deliver on their net-zero promises. On top, the Director reminded institutions of the fact that they have an obligation to develop „credible plans“ to meet their own stated targets. Any failure to do so could be perceived as as form of greenwashing by the financial market.
Additionally, the Director reminded of the necessity to adjust the entire value chain along the green mortgage product. Not only must banks and other lending institutions adopt policies to incentivize energy efficiency, but must credit brokers get informed and trained on any such mortgage offerings. Corresponding communication is a must. Furthermore, must brokers ensure that they help borrowers understand their options and help them navigate the complex, differentiated and green mortgage finance jungle. With more green loan product developments expected in the future, this support will become even more important in the future.
Finally, Mr. Geale briefly discussed the new consumer duty and the expectations of financial institutions and credit brokers when it comes to green mortgages and reflected on a key risk involving mortgages, namely the risk to leave out clients that cannot afford energy-efficient homes or that cannot take necessary measures to adequately renovate their homes towards low carbon emissions.