A think-tank has called for a reduction in stamp duty along with improved mortgage affordability tests to help encourage more energy efficient homes.
Policy Exchange said in a new report that homebuyers would be encouraged to buy more energy efficient properties if stamp duty was directly linked to the energy performance of a home.
It argued that linking stamp duty to energy performance would help create an incentive to purchase a more energy efficient home, leading to as many as 270,000 households undertaking energy efficiency improvements.
Richard Howard, author of the report, said: “Improving home energy efficiency can save households money, as well as substantially reducing their carbon emissions. Policies which link property values more closely to energy performance could kick start an energy efficiency revolution in this country.
“By reducing the transaction costs and increasing the mortgage available for a more energy efficient home, the government could nudge people into making improvements to the efficiency of their home, which would not only add a premium to their property but would also reduce their energy bills.”
The report heavily criticised the government for cutting back on energy efficiency programmes, saying that the UK was now at a “crossroads” after abandoning the Green Deal scheme.
“The UK still has amongst the least efficient housing stock and highest rates of fuel poverty in Europe. Progress in improving energy efficiency is slowing: the government is targeting one million homes to receive energy efficiency measures during this parliament, compared to 4.5 million during the last parliament,” the report said.
The think-tank proposes reducing stamp duty for someone buying a property with high energy efficiency, while inefficient properties would see a rise in stamp duty costs.
For example, a homebuyer purchasing a house worth £220,000 would see a £500 reduction in stamp duty costs. For a £220,000 property with a poor energy efficiency rating, stamp duty would rise from £1,900 to £2,470.
The report also suggests offering homeowners a stamp duty rebate if energy efficiency improvements are made to a property in the first 12 months of purchase.
Since stamp duty is not paid on properties below £125,000 there would be no impact on lower value properties at all. Policy Exchange says the reforms should be gradually phased in and that the adjustment in stamp duty would be no more or less than £2,500 regardless of the value of the property.
The report proposes that mortgage affordability tests should be reformed to reflect the energy performance of a property and that lenders should be encouraged to offer energy efficiency mortgages.
Howard said that as lenders based mortgage affordability calculations on the amount that a homebuyer currently spends on energy in their existing property – not what they are likely to spend in their new property – affordability tests were largely inaccurate.
“Reforming mortgage affordability tests to reflect actual energy costs would allow a homebuyer to borrow more against a more efficient property. The proposed changes could also encourage mortgage lenders to offer energy efficiency mortgages to finance energy efficiency upgrades: a low cost form of finance compared to the loans previously available under the Green Deal model,” said Howard.
