Real Estate Finance Insights

Real Estate Finance Insights

This week marks the start of COP26, the global climate change conference being held in Glasgow.

The annual summit, now in its 26th year, brings together world leaders to discuss the threats of climate change and agree measures to tackle the crisis. One of the big aims of COP26 is securing global carbon net zero by the middle of the century, with countries tasked with setting ambitious emissions reduction targets by 2030.

As this year's host nation, the UK is leading by example. The UK was the first country to pledge to reduce carbon emissions by 78% by 2035 and has already put measures in place to achieve this target, including phasing out of coal power by 2024 and ending the sale of new petrol and diesel vehicles by 2030.

Homes are a significant contributor to the UK's carbon emissions, and the housebuilding industry is expected to play its part in the country's decarbonising efforts. In 2019, the Ministry of Housing, Communities and Local Government (MHCLG) launched a new green standard for new build homes that would help tackle climate change while reducing household bills.

The Future Homes Standard will see polluting fossil fuel heating systems such as gas boilers banned from new homes by 2025 and replaced with the latest generation of clean technology - such as air source heat pumps and cutting‐edge solar panels.

To ensure housebuilders deliver on the government's green targets, an independent industry group has been set up to spearhead thinking.

The Building Back Britain Commission aims to produce fresh ideas to help reduce emissions from housing stock. In the UK, around 20 per cent of total carbon emissions come from homes, so there's work to be done.

But decarbonising Britain's housing isn't just the responsibility of high‐volume housebuilders; it's a challenge for SME developers, landlords and investors alike, at all ends of the housing spectrum. In fact, given that new housing accounts for just 1‐2% of total building stock each year, addressing the energy efficiency of existing housing is critical to achieving carbon neutrality.

Supporting the green revolution is also a challenge for the finance sector, both in terms of investment and development funding. The Green Finance Institute, an independent organisation formed in 2019, announced the formation of the Coalition for the Energy Efficiency of Buildings (CEEB), which aims to develop the market to accelerate capital flows towards retrofitting and developing UK homes to net zero carbon, resilient standards.

At Secure Trust Bank Real Estate Finance, we're doing our bit to encourage and support carbon conscious property investment. Earlier this year we launched the Greener Homes Scheme, which offers favourable interest rates to borrowers investing in sustainable property portfolios or upgrading existing properties to make them more energy efficient.

To qualify, borrowers must meet specific green lending criteria and demonstrate a commitment to reducing carbon emissions.

White Property Holdings Ltd recently became the first developer to take advantage of the scheme by securing a £1.14 million green investment loan against a development of 12 new homes in Henley in Arden, Warwickshire.

The green investment loan offers loans secured against portfolios where 90 per cent of properties, measured by area, have an EPC rating of A, B or C.

Initially, the bank committed £100 million to the Greener Homes Scheme, which has already been allocated, such has been the demand from investors.

Compared to the action that needs to be taken on climate change, this may seem like a small gesture, but to make a difference we all need to do our bit, no matter how small or insignificant it may seem. Small actions often have a big impact.

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