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Home » Contractor Mortgages » Green Mortgages for Houses with Octopus Energy
Green Mortgages & Zero Bills with Octopus Energy
A discussion on green mortgages with James Kinns, New Build Director at The Mortgage Store, and special guest, Emma Fletcher, Low Carbon Homes Director at Octopus Energy. Gary Clarke hosts the conversation, which took place in November 2024.
Gary: We’ve invited Emma to speak with us today, as we were excited to meet her recently at the New Homes Senate in London. We thought it’d be great to share some details about their Zero Bills proposition, and I’ll pose her and James a few questions.
How did the zero bill hours proposition from Octopus come about?
Emma: We’ve got some clever people here at Octopus that work on our database, which is called Kraken. Kraken is an amazing system – one end manages billing and the other end is trading on global energy markets.
Somewhere in between, it’s controlling wind turbines and solar farms, bringing in weather data. Basically, the engineers within Octopus have worked out how to charge cars at super cheap rates at night. We were turning wind turbines off at night, but now we can keep the wind turbines on and pass that benefit on to electric car users.
We taught Kraken how to do this, and then somebody asked if we could do this with a house. What if we could flex when a house uses power from the grid, when it stores it and when it uses power from solar panels?
Then, a house becomes like a mini energy generator or a mini storage centre. That’s the concept of Zero Bills – you take power from the grid when it’s cheap and green, and store it so you don’t use your electricity when the grid is really expensive.
How can the Zero Bills proposition help mortgages?
James: Over the last 12 to 18 months, more lenders have actually started to look at the whole energy efficiency of property and how they can help customers from that point of view.
We’ve seen more flexibility from lenders – such as increasing Loan to Values on mortgages for new build properties because of the energy efficiencies.
For customers, lower energy costs – or even having no bills – can only help maximize their borrowing ability. More lenders are looking at that now, so that on a more energy efficient property, they’re happy to lend more on a mortgage.
We’ll come onto a few examples later on about some of those lenders and how they’ve changed their green mortgages.
Which builders are you currently working with on the Zero Bills proposition?
Emma: It works really well with developers that are already installing air source heat pumps. Fundamentally, Zero Bills works with air source heat pumps, batteries and solar panels. So if you’re already building with air source heat pumps, you’re halfway there.
In terms of some big strategic tie-ups, Thakeham have done a few sites with us to trial the Zero Bills proposition; and they’ve now signed an agreement with us, so that nearly all of their new sites now will be Zero Bills.
Our first large site was with Hill and Clarion, the housing association, which has developed 89 homes in Newport and Essex for Zero Bills. That includes private sale, social rents, affordable rent and shared ownership properties, which is really exciting.
We’ve been working with SMG, the housing association, and a developer called Verto in Exeter. We’re talking to big PLCs, and Vistry have just signed with us for Zero Bills, and also Bellway, Persimmon, Hopkins Homes and Tilia, who are part of Terra Firma. We’re seeing some large developers and PLCs coming forward.
Is this just for new build properties? Can it be retrofitted to other properties?
Emma: It started off as a new build proposition, with guaranteed Zero Bills for five years. We’ve now changed to a 10 year Zero Bills proposition. There’s no standing charge and no bills, as long as you stay within the fair usage policy, which is twice what we expect the average house to use.
We’ve seen that roll out because the fabric of new build homes is good. Excitingly, we now know we can deliver Zero Bills in Scotland because the fabric of homes there is also really good.
Even more excitingly, we have a couple of different trial projects on terraced houses in London, where the landlords have deep-dive retrofitted the houses.
We’ve also got an example project working with Clarion on 1960s homes, using SHDF – social housing decarbonisation funding – to retrofit homes. We’ve potentially got the ability to do Zero Bills on homes built since the 2013 building regs, which probably means homes built since 2015.
We’re also looking at projects in Suffolk on homes that already have air source heat pumps, to see whether we can add solar and battery to turn those to Zero Bills homes. There are lots of different irons in the fire. I’m not going to say we’ve nailed it just yet, but for people that have invested quite a lot in improving the fabric of their properties, we think there’s a really good opportunity for Zero Bills in retrofit too.
Is there funding available from the government at this stage, or has that been removed?
Emma: For the new build market, sadly, there’s very little funding for doing the right thing. But in the retrofit market, there is still a fairly good grant of £7,500 that any private occupier can apply for.
It’s called the Boiler Upgrade Scheme Grant, and is available towards an air source heat pump. There’s no real funding towards solar and battery, but there are insulation grants that a number of homes do qualify for.
At a more local or county level, lots of local authorities are exploring different types of loans, including interest free options, to assist homeowners to improve the fabric of their house.
Could you give us a couple of examples of lenders that are picking up and running with this?
James: Just touching on the retrofitting element, quite a few lenders have actually looked at how they can support customers to improve the energy efficiency of their property.
Skipton and Nationwide are two that stand out from an additional loan perspective. Nationwide have come out with an interest free loan of up to £20,000 to install solar and air source heat pumps. Skipton has some specific products focused on upgrading properties to be more energy efficient.
A couple of new lenders have recently come into the market, including Perenna, which is a very niche lender that will actually look at mortgages across the whole term. It does have some flexibility, to allow the customer to come out of that mortgage after a set period of time – normally five years.
Because it is a long-term fixed rate, Perenna can enhance the borrowing – they’ll actually lend someone up to six times their salary, depending on certain criteria.
Lots of lenders are looking at green mortgages and Leeds Building Society and Skipton as I mentioned are particularly good in this space. How they incentivise green homes is not only allowing people to potentially borrow more money, but also at slightly reduced rates compared to their standard product range.
There is also some cashback which helps towards the costs when you’re looking at purchasing a property. And it’s definitely going to be an ever increasing market.
How do you feel this will shape lenders’ policy as we move forwards?
James: We’ve had a lot of change this year and more lenders are looking at how they can support new builds further. Some have increased their Loan to Value in the last six months to support customers – especially First Time Buyers.
There are also new build specific schemes and the Own New rate reducer scheme, which recently came into the marketplace. There’s the First Home scheme as well, which is focused on new build properties.
This will definitely increase and more lenders will get involved. Some lenders still expect a 15% deposit from a customer. I think they will naturally progress and improve their criteria, especially with multiple lenders now accepting 95% lending on new builds – with 5% from a customer.
Some actually do 100% mortgages for customers now on new builds, which is fantastic. There’s clearly an appetite out there. Do we need more? Absolutely. More support is still needed to help First Time Buyers get on the property ladder.
Lenders also have mortgage books of millions of customers. They’re looking at how they can use that to help customers have energy efficient properties. They’re exploring that back book and not just new business.
As well as retrofitting and maximising grants and loans, do you have any tips for people that can’t do a complete retrofit all at once?
Emma: I’m going to start off with something very close to my heart, which is my local district heat network – a net zero scheme in my village. There were no barriers to entry for that. People could just join the heat network and pay that connection off over time.
What that’s taught me is that there’s an awful lot of anxiety around retrofit. When do you start and how? What do you even do to your home? But once you’ve sorted out the heating and the hot water, you can start to relax and decide what to do next.
For people whose gas boiler might not last much longer, it could be a good idea to start with an air source heat pump or a ground source heat pump. You can just get rid of the gas you’re burning in your home.
That isn’t an option for everybody, and may require changing your oven as well. But if you could combine it with solar and battery, that really is a game changer in running your home.
For many people, an electric vehicle gets them on this journey. Possibly they’ve got a lease car from work, an electric vehicle, and they find the ability to flex in with the house is amazing. You drive home from work, plug your car in and and get it charged up overnight at a super cheap rate of 7p a unit overnight.
If you’ve got the correct car charger, called a wall box, we offer 12,000 miles free driving a year because we’re running off that car battery.
Think about how you store the energy, whether it be through a car or through a battery – that’s a great place to start as well. The ability to reduce your energy bills each month is fantastic. When you really see your bill coming in, and it’s a lot lower because you only use power when the grid is cheap, you really can see a huge difference.
Gary: Fantastic. I think that’s so important to get across – it isn’t an all-or-nothing scenario. It is very much something you can build up over time. It’s just about taking smaller, more consistent steps and taking that gradual path.
Emma: We totally agree with that, because doing everything is not an option for a lot of people. But breaking it down into electricity generation, your car and the boiler makes it a lot easier. Obviously, there are amazing things you can do with insulation, but it does get more tricky.
If you’re having to pull everything down from your loft to sort that out, it can be quite challenging. Some people choose to wait until they’re going to replace their kitchen or bathroom. You can timetable it in when you can afford to do it, and perhaps alongside any work you’re already doing on the home.
With green homes, what’s the minimum deposit needed?
James: A 5% deposit is probably the minimum. 10% will open up more lenders, purely because of the new build specific criteria. Lenders that have green products will have new build criteria around that. Some lenders will lend 100% on new build property, but they’re few and far between.
I’ll just highlight the importance of speaking to a broker that has access to mortgages and lenders across the whole spectrum
It’s really useful to get information about what lenders will lend on new builds, the deposit you need and which lenders offer these green incentives. Start having those conversations as early as possible, with a broker that has access to products across the market.
Gary: Now, let’s have a look at a couple of green lenders – Accord and Perenna.
Imagine a married couple with one child that has a household income of £70,000 per year – £35,000 each. There are no childcare costs, to keep it simple, a car loan at £425 per month and a single credit card with a balance of approximately £5,000.
They’re looking at a property at £400,000 with a 15% deposit, so they need a mortgage at £340,000 over 35 years. What would be the loan amounts from those two lenders on their standard affordability – and also on their enhanced affordability for either new build or Zero Bills?
James: Looking at Accord mortgages, their standard affordability for a non-new build property would be £348,259. On a new build property, with an EPC rating between A and C, that would enhance the borrowing up to £359,091. So it’s given you just over £10,000 of additional borrowing on a new build property against a traditional property.
With Perenna, it’s slightly less. On a standard property it would be £323,841 and then with the Zero Bills affordability built in, it would be £347,489. You can see there’s a significant difference between Pirenna from their standard to the Zero Bills affordability.
Other lenders have a similar calculation. Leeds is another example with two different affordability assessments. So it’s crucial to understand what your options are. They’re simply enhancing affordability on the basis of the efficiencies of those properties and the energy bills being considerably lower – or zero for a period of time. That can make all the difference with current property prices as they are.
Where can people find out more about the Zero Bills proposition?
Emma: You can find me on LinkedIn, Emma Fletcher-Cambridge, or you can have a look at our website where we show all of our tariffs. There’s a specific page dedicated to Zero Bills with more information.
How can a mortgage broker help when it comes to green mortgages?
James: I’ve been in this industry for 20 years now, and doing your homework on this is absolutely crucial. Make sure you know what your borrowing amounts are and that you can get the mortgage you’re looking for.
There’s no point going out there and looking for properties until you’re comfortable you can afford the mortgage payments and get that borrowing. It will then help you determine your options around green mortgages.
As we’ve seen, you can borrow a bit more on energy efficient properties. Many customers who are coming to the end of their mortgage rates want to understand green mortgages, what they can do to improve their energy efficiency and how to reduce their carbon footprint. It’s obviously important to a lot of people at the moment.
Most importantly, speak to a broker with access to all lenders across the marketplace. I can’t highlight enough the importance of that.
Gary: Absolutely. It’s a big old market out there and we want to help. Come and have a chat with us – I can promise you that if there’s a solution to be found, we’ll find it for you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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