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Zero impact

Guy Anker reports on the plan to exempt eco-homes from stamp duty

The Building Societies’ Association has thrown down the gauntlet to the mortgage industry to come up with environmentally friendly products.

The call comes after Chancellor Gordon Brown announced in last week’s pre-Budget report that new zero-carbon homes will be exempt from stamp duty from next year.

The BSA believes environmental issues and property are now linked. In September, Housing Minister Yvette Cooper also raised called on mortgage lenders to design “green mortgages”.

But questions have been raised about whether the stamp duty exemption will make any difference to the environment or help first-time buyers.

BSA head of external affairs Rachel Snow says: “The issues of property, energy efficiency and climate change are in the spotlight. Lenders will need to look seriously to see if there is a market-led solution and consumers will look at lenders for those. This is something that building societies will be examining carefully.”

One idea that has previously been mooted is for lenders to offer cheaper rates where borrowers live in environmentally friendly homes. Other initiatives could include lenders donating money to environmental charities for every policy sold.

The Co-operative Bank already donates money to a company called Climate Care which helps offset carbon emissions.

The Council of Mortgage Lenders is also exploring ways for its members to provide energy-efficient mortgages and is looking abroad for ideas. There are green products in other sectors of financial services, with insurer More Than and Co-operative Financial services offering eco-friendly motor insurance.

But experts question whether such schemes would work in the mortgage market. John Charcol senior technical director Ray Boulger says: “What difference would it make to borrowers to take 100 of an arrangement fee, for example? What happens if an eco-friendly mortgage only applies to certain products within a provider’s range? That might make its other products less competitive and that creates commercial problems.”

Boulger says the energy-efficiency report in housing information packs could be used as a measuring tool for carbon efficiency if the scheme was extended.

The main concerns, from a mortgage perspective, are how many first-time buyers would be helped by the stamp duty exemption and some also think that the move would have minimal effect on the environment.

The Treasury has admitted there are only 24 zero-carbon houses in the UK at present. But a Treasury spokesman says: “While there are only about two dozen UK zero-carbon homes, this is about encouraging people to build more zero-carbon homes. Within 10 years, all new homes will be zero-carbon.”

All Brown said in the PBR was that the “majority” of new zero-carbon homes would be exempt from next year which has seen initial caution in the industry until more detail is given.

The Treasury has explained that many big properties will not be exempt as the tax break is designed for those on lower incomes to enter the housing market. It says that once the fiscal measure has created a change in building practices, where all new homes are zero-carbon, then it will end the exemption.

A zero-carbon home is defined as one that does not constitute a drain on the National Grid, so has good insulation, solar panels, wind turbines and other green sources of generating energy.

This is not the first time that Westminster has showcased its green credentials through introducing measures into the mortgage market. After the Government U-turn in July that saw home condition reports axed as a compulsory part of home information packs, the energy efficiency report became the key comp- onent of Hips.

Other industry figures have said that last week’s announcement will have little impact on the market.

Norwest Consultant principal Harry Katz says: “This scheme is the biggest con ever. It will probably be so Draconian that it will be impossible to build a non-carbon house.”

Savills Private Finance managing director Mark Harris says: “Nothing less than an extensive overhaul of stamp duty would have done, such as abolishing it for first-time buyers and introducing a tiered system for homeowners.”

Harris is not alone in complaining that the lack of general stamp duty reform was conspicuous by its absence.

Abbey for Intermediaries managing director Ricky Okey says: “The abolition of stamp duty to encourage buyers of zero-carbon-rated homes is an overt acknowledgement of the impact that stamp duty has on home-buying decisions.

“However, the funda-mental impact of stamp duty on homebuyers is being ignored. It remains an unfair tax which punishes certain homebuyers and not others. The current system distorts the housing market for homes around each threshold.”

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