Securitising homes that have achieved an EPC grade A and B could offer a recapitalisation opportunity to the tune of £190 billion, according to a report by geospatial technology company, Kamma.
Government targets for improving UK property suffer from a major gap in funding, yet green securitisations could more than cover this gap, unleashing a green funding revolution in the UK marketplace.
Proposals so far have pointed to an increased role for the private sector, with mortgage lenders set to take increased responsibility for delivering an average EPC grade C by 2030. As Kamma has previously reported, in England and Wales alone this creates a bill to the tune of £48.3 billion, with no clear indication of who is picking up the tab.
Orla Shields, Kamma CEO, said: “Hosting the UN’s Climate Change Summit is putting yet more pressure on the UK government to lead the way in their commitment to fighting climate change. So far, they’ve only set targets and laid out the scale of the challenge. In the search for solutions, we believe the time is now for green RMBS.”
Recent market data shows a dramatic increase in the popularity of green investments, which grew by 96% last year to some £288 billion globally.
Orla adds: “This is no longer just about investors supporting sustainability goals. With a wave of new regulation about to hit the UK market, consumer sentiment and spending favouring green brands and an increase in ESG investment, banks are starting to wake up to the financial, as well as environmental, benefits of ESG products. Proposed regulations for the UK housing market, for example, could dramatically alter the value of energy inefficient homes. Greener investments are becoming the more profitable investments.”
Kamma points to the world-leading example of the Dutch bank Oblivion, who double qualified their RMBS with both green underlying assets and green use of proceeds. Directing their re-capitalised funds into green loans qualified another wave of homes for green RMBS, creating a virtuous circle of green lending. Repeating this at a UK market level would create a revolution in green investing and funding available. A favourable market, with investors paying a premium for better performing sustainable assets, incentivises mortgage lenders to offer green RMBS, thereby increasing lending and lowering interest rates on energy-efficient homes. In turn, this incentivises property owners to reduce emissions, creating a virtuous circle that accelerates the transition to a greener world.
Orla concludes: “Securitising around a quarter of the £190 billion available could supply the funding needed to meet the government’s target of an EPC grade C in homes in England & Wales. This, in turn, would qualify a further 2.6 million homes for green securitisation, tapping into the green investment market and providing yet more funds for the green revolution that UK housing desperately needs.”
