Mortgage Matters: Are Purchasers Prepared to Pay More for Green Improvements?.
As the housing market increasingly turns its attention to energy efficiency, buyers are weighing up the cost and benefits of green improvements more than ever. In this article, Chris Hare, Senior Risk Manager at Nationwide, RICS Registered Valuer and Chartered Building Surveyor, explores the latest market trends, looking at what buyers are willing to pay for energy-efficient upgrades, how the Energy Performance Certificate (EPC) influences property valuations, and the role lenders are playing in this shift. With a pragmatic take on buyer demand and real-world examples of green improvements, Chris examines the practicalities of making properties more sustainable.
(Please note: the views expressed are his own and do not necessarily reflect Nationwide’s position.)
A quote from the House of Lords Environment Committee helps set the scene for the discussion on energy-efficient home improvements and highlights the point that everyone has their part to play in improving the UK’s housing stock:
“35% of emissions reductions up to 2035 relies on decisions by individuals and households, while 63% relies on the involvement of the public in some form. This means the whole country needs to be engaged in this immense challenge—every government department, every layer of devolved and local government, every business, every charity, civil society group and faith community, and every household. Leadership and coordination from the Government are vital.” House of Lords Environment Committee (2022)
Central and local governments must take the lead in driving energy efficiency, and businesses – including lenders – also have a crucial role to play. However, what many may not realise is that 35% of the necessary emissions reductions must come from individual households. This means that more than a third of the effort required to meet sustainability goals depends on homeowners making changes. Therefore, a key focus must be on consumer education. As an industry, it is not just lenders but also surveyors and valuers who have a responsibility to inform and guide homeowners toward making energy-efficient improvements.
Trends in Buyer Demand for Energy Efficient Homes
Buyer demand for energy-efficient homes is growing, but challenges remain. While many homeowners are drawn to the idea of a warmer, more efficient home, they often lack clarity on the specific steps needed to achieve it. Cost and perceived value of any improvements remain the biggest barriers, with some still viewing green home improvements as a luxury rather than a necessity. Demand also varies regionally – London is leading the way, while areas such as Wales and Yorkshire lag behind. Lower-value properties, particularly those under £400,000, are the least likely to see improvements. However, beyond financial considerations, an improved quality of life is emerging as a key motivator for those investing in energy efficiency.
Is there such thing as a ‘Green Premium’?
Knight Frank’s 2022 research examined EPC certificates from 30,000 dwellings to assess whether improving a home’s energy efficiency translates into higher property values. The findings suggest that homes moving from a D to a C rating gained an additional 3% in value beyond local house price growth. More significant improvements, such as moving from an E to a C rating, resulted in an average price uplift of 8.8% (£29,289), while homes improving from an F/G rating saw an even larger increase of 19.6% (£64,444). However, while the research controlled for changes in property size, it did not account for condition – an important factor in determining whether a true ‘green premium’ exists.
Buyer sentiment also presents a mixed picture. Knight Frank’s survey found that 80% of respondents considered energy efficiency more important in their next home purchase than they did a year ago. Yet only 20% said they would be willing to pay more for an energy-efficient property. This suggests that while energy efficiency is growing in importance, buyers continue to prioritise other factors, such as location, over sustainability. Reflecting this evolving landscape, Nationwide Building Society and The Mortgage Works (Nationwide’s buy-to-let arm) now requires valuers to consider and comment on EPC ratings for both subject properties and comparables in every valuation.
Green Improvements Are Not Always Reflected in Value
While energy-efficient homes and properties with higher EPC ratings are often viewed favourably, they do not always achieve higher prices. One key challenge is that the cost of installing certain green improvements can far outweigh the potential savings, making homeowners hesitant to invest for fear of making poor financial decisions. For a significant ‘green premium’ to emerge, stronger incentives or penalties may be required to encourage upgrades. Additionally, consumers need better access to detailed information – such as the running costs of properties with different EPC ratings – to make more informed purchasing decisions.
What are lenders doing?
Lenders are actively exploring ways to support their customers in making energy-efficient home improvements. This includes identifying the most effective upgrades that are appropriate, providing guidance on available funding options (particularly for our buy-to-let properties) and offering financial products such as green home loans and green mortgages to incentivise sustainable choices.
Additionally, lenders are incorporating climate change considerations into their risk assessments, with initiatives like the Bank of England’s Climate Biennial Exploratory Scenario (CBES), which models the financial impact of various climate change scenarios. Many lenders have also committed to improving the energy efficiency of their mortgage portfolios, aiming to raise the average EPC rating of properties they finance to at least a C by 2035.
This stress testing assesses the financial risks lenders face due to climate-related factors. It examines legislative risk, where properties must meet minimum energy standards or face fines; financial risk, as the high costs of retrofitting homes to EPC C could impact loan-to-value (LTV) ratios; credit risk, since borrowers may struggle with repayments if forced to fund upgrades, potentially devaluing non-compliant properties; and reputational risk, where lenders failing to support green initiatives could lose customers to more environmentally conscious competitors.
What are investors doing?
While it’s positive that EPC targets and ambitions have been announced, progress has been slow over the last couple of years, partly due to caution following previous government policy reversals. Some investors had spent money on measures and then the government made a U-turn and removed the previous targets.
The current government has announced their ambition for all buy-to-let properties to reach a C rating EPC by 2030. They’ve also suggested there will be a £15,000 spending cap in place, so property investors are likely to prioritise the cheapest properties to upgrade first before assessing whether they can afford to improve the rest of their portfolios. If full upgrades aren’t financially viable, some may choose to sell off the worst-performing properties to fund improvements elsewhere – ultimately delaying the challenge rather than solving it.
Bridging the Knowledge Gap: Empowering Consumers and Surveyors to Drive Energy Efficiency
Education is a crucial piece in driving energy-efficient home improvements. While developers, government bodies, and industry professionals are well-informed, the average consumer often isn’t – and it’s unreasonable to expect them to be without clear guidance. Even though many homeowners say they would invest in improvements if cost weren’t a barrier, their priorities typically remain focused on factors like property type, size, affordability, and proximity to schools and transport. As a result, EPC ratings are frequently viewed as a bonus rather than a necessity – nice to have, but not essential in the decision-making process.
There is a significant opportunity for surveyors carrying out Level 2 and 3 surveys to upskill in retrofit. By gaining a deeper understanding of retrofit improvements, they can offer more informed, tailored advice to customers – helping them make better decisions about energy efficiency and future-proofing their homes.
At the top end of the market, there’s a clear appetite and willingness to pay for green, with buyers both able and eager to invest in energy-efficient improvements. However, the real challenge lies in understanding the middle of the market, particularly within our local area, where affordability, priorities, and motivations can vary widely.
Typical Upgrades – what are they worth?
Although this is a complex question, I would ask these questions when considering what an upgrade is worth:
- Is the upgrade desirable?
- Does it add value?
- Can you reflect the additional cost to buy and install in your valuation?
- How do you quantify whether the upgrade will save the homeowner money on their energy bills?
- Are there additional maintenance liabilities?
- Do the answers differ from area to area?
Typical Improvements
The most common improvements include solar PV, battery storage, car charging points, increased insulation, electrification, and heat pump installations.
Let’s take a closer look at the costs and value associated with these measures:
Solar PV
When it comes to solar photovoltaic (PV) systems, costs and quality can vary significantly, making it difficult to determine their true value. For a typical two-bedroom home requiring a three-kilowatt system, quotes range widely – from around £5,000 for six panels from a major energy provider, to £2,000 based on a developer’s “£1,000 per bedroom” approach, with some consumer websites suggesting figures closer to £9,000–£10,000. Beyond the cost, there are key questions around the quality and longevity of the panels. Surveyors, particularly those relying on traditional observation methods, may struggle to distinguish high-end systems from cheaper DIY alternatives without specialist knowledge or documentation from the homeowner. Panel lifespan is also crucial: a six-month-old array has clear value, but one nearing the end of its 10-year life may present a future liability. Factors such as installation quality, panel pitch, and location suitability – especially for listed buildings or properties in conservation areas – must also be considered. Even visual impact, such as arrays on front elevations, may influence value perceptions. While there is undoubtedly a premium associated with solar PV, we need to carefully consider what that premium is.
Battery Storage
Battery storage systems, often installed alongside solar PV arrays, typically cost around £3,500 for a three-kilowatt setup, according to both energy providers and consumer websites. However, beyond the price tag, it’s important to consider the quality and age of the battery – factors that can significantly affect performance and lifespan. Just as electric vehicle batteries degrade over time, so too do home energy storage batteries, meaning an older unit may offer reduced efficiency and value. The battery’s location is another important consideration. While installations in lofts – such as on a chimney breast – were once common, best practice now discourages this due to access difficulties and potential fire risks. Ideally, batteries should be installed in a secure, well-ventilated outbuilding or garage. Additionally, the presence of a warranty for both the battery and its installation could indicate added value. As with other green technologies, surveyors and valuers need to upskill to properly assess the condition, suitability, and value of these systems.
EV Charging Points
Electric vehicle (EV) charging points are becoming an increasingly desirable feature in today’s housing market. Most energy providers and major developers quote around £1,000 for installation, although homeowners can often source units themselves for significantly less. While EV chargers are widely accessible and relatively inexpensive to install, their impact on property value is still debated. A recent paper from Cambridge University suggested that the presence of a car charger could add 6–7% to a home’s value—an uplift that seems difficult to justify, especially in high-value areas where this could equate to tens of thousands of pounds. Nonetheless, convenience plays a significant role. For buyers who already own an electric vehicle, the ability to charge it immediately after moving in can be a compelling advantage. When comparing two otherwise similar properties, one with a charger and one without, many buyers are likely to pay a small premium for the added functionality. While the actual value increase may be modest, EV chargers are clearly seen as a positive selling point in the current market.
Insulation
Insulation can be one of the most cost-effective and impactful ways to improve a property’s energy efficiency and comfort—provided it is installed correctly and is appropriate for the building. This is the critical point that often causes concern when it comes to retrofit measures. Poorly installed insulation can create more problems than it solves, potentially making a home colder, damper, and harder to heat. When done well, however, it can be a straightforward and affordable improvement. In terms of value, external wall insulation may offer the greatest visibility and potential premium, as it’s something buyers can clearly see and appreciate. In contrast, improvements hidden in lofts, floors, or wall cavities tend to be undervalued by purchasers, simply because they’re out of sight. Ultimately, the true value of insulation lies not just in the material itself, but in the quality and visibility of the installation.
Electrification
Electrification in new homes presents both challenges and opportunities, particularly when it comes to how it’s communicated to potential buyers. Feedback from a Future Homes Hub working group – made up of developers large and small across the UK – highlighted a key insight: full electrification cannot be sold on the promise of lower energy bills. In some cases, electric heating systems may actually be more expensive to run than gas, especially if lower-cost and efficiency electric options are used. Instead, successful developers have found that buyers are more responsive to messages focused on reducing carbon footprints and creating healthier living environments. Once consumers understood these wider benefits, take-up was positive. This marks a significant shift in how the industry communicates efficiency measures, moving beyond cost savings to promote long-term sustainability and wellbeing—an encouraging development in the last 12 months.
Air Source Heat Pumps
Air source heat pumps are gaining traction in the market, particularly in new builds where developers are increasingly committed to installing them. However, the ability to charge a premium for a heat pump over a traditional gas boiler varies depending on location – developers report that only in certain markets are buyers willing to pay more. For existing properties, with government grants available, the overall cost to the homeowner can be around £6,000 once funding is factored in. While uptake in new builds has been positive and there’s a general enthusiasm around heat pumps, retrofitting remains more challenging due to the need for proper insulation and compatibility with existing systems. There is often a visible premium for properties with heat pumps, especially when compared with similar homes nearby without them, making it reasonable for valuers to reflect this in their assessments – if supported by market evidence. However, the payback period is variable, ranging anywhere from 12 to 120 years, which may affect consumer appeal. Notably, many modern heat pumps also offer a cooling function, adding value as climate change leads to warmer summers. Overall, the market appears to be embracing heat pumps, and awareness of their benefits is growing steadily.
The Need for Consumer Education and Industry Upskilling
In conclusion, educating the consumer is essential if we are to make meaningful progress in valuing and promoting energy efficiency in homes. Currently, within the valuation field, it remains difficult to distinguish between improvements made purely for modernisation and those that enhance a property’s EPC rating. When energy efficiency upgrades are carried out alongside general improvements, it can be challenging to isolate and quantify the value added. At present, valuers may be more inclined to adjust for condition than for green measures. Market response is inconsistent – some areas value green improvements highly, while others only attribute value to specific upgrades. This variability highlights the importance of understanding local market preferences. Surveyors making recommendations to clients should consider which green features are desirable in their area to ensure homes are both appealing today and future-proofed for tomorrow. As an industry, this is an opportunity to upskill, embrace retrofit and grow more confident in assessing and advising on sustainability measures.