Mortgage lenders told to relax over Green Deal

Mortgage lenders told to relax over Green Deal

Concerns that Green Deals could pose a problem to landlords buying or selling homes have been partly allayed by the Council of Mortgage Lenders.

There have been concerns that property owners who secure Green Deal finance may have difficulty selling  a property to someone who needs to raise a mortgage, or raising a mortgage themselves if they want to buy a property where a Green Deal is in place.

The CML has now published new guidance for its lender members, in conjunction with the Department of Energy and Climate Change.

The guidance reinforces the messages that, in principle, the Green Deal presents no obstacle to lenders – and should not affect mortgage affordability.

Under the Green Deal, borrowers can take out credit to fund improvements to the energy performance of their homes and repay the loan through instalments added to their electricity bill. In the case of landlords, the complication is that it is not themselves but their tenants – as users of utilities – who repay the loan.

The guidance includes a reminder that anyone taking over the energy bill on a property with Green Deal finance is not liable for any payment arrears left by the person formerly responsible for the bill.

That is because Green Deal repayment instalments are part of the electricity bill and are treated in the same way as any other energy debt.

That same principle also applies to lenders who take possession of the property because of mortgage arrears.

Once the property is in their possession, however, they will be liable for Green Deal commitments until it is sold again. The energy supplier will not be able to call on the lender for any arrears on the electricity account accrued by the defaulting customer, but lenders may choose to pay off any outstanding Green Deal plan if they want to.

Lenders do not generally need to give their consent to energy efficiency improvements funded by the Green Deal that do not change the structure of the property.

This would include improvements like loft insulation and replacement boilers. The Green Deal code of practice does say, however, that customers considering structural improvements to their properties should be advised by Green Deal providers to check if they need to seek the consent of the lender.

If in doubt, landlords interested in taking out Green Deal finance should speak to their lender first.