Green mortgages

It’s no secret that we’re in the middle of a global climate crisis. However, due to talks at the 2021 COP26 meeting, the term ‘green mortgage’ has started to garner some interest from those unaware of its meaning.

Homes in the UK account for more than a fifth of the UK’s total CO2 emissions, which may explain why the government began to create green policies ahead of the COP26 in Glasgow. These new eco policies could be a gamechanger for those looking to take personal sustainability a step further.

Keep reading to discover what green mortgages are and how they impact house buyers in the UK.

What is a green mortgage?

A green mortgage, sometimes known as an eco mortgage, is the same method of borrowing money to buy a property as a ‘normal’ mortgage. What makes it ‘green’ is that the lender will reward the borrower with beneficial terms for purchasing an energy-efficient home.

The beneficial terms are usually:

• A lower interest rate
• A higher loan total
• Cash as an incentive (sometimes)

Lenders will only offer better terms if the building the borrower wants to purchase already has energy-efficient features (such as solar power, for example) or if the borrower intends to renovate an existing house to make it more energy-efficient.

How do green mortgages work?

Currently, a green mortgage works the same as borrowing a typical mortgage. However, the buyer will typically be given a lower interest rate from their bank or mortgage lender. Some banks also offer cashback.

Green mortgages don’t just apply to new borrowers, though; some lenders offer benefits to their existing mortgage customers.

For example, suppose you attempt to make green home improvements, such as replacing windows for double glazing, upgrading your heating system for a more efficient service, or adding solar panels to the building. In that case, your lender might be able to offer you more money on your mortgage at a discounted rate to pay for these improvements.

However, it’s important to remember that the incentive depends entirely on the lender, and some deals might only apply to new-build properties.

So, what’s in it for the lender?

When lenders offer mortgages, they consider the risk. And green buildings are seen as less risky because:

• They cost less to run. From the lenders perspective, the lower your bills, the better off you’ll be, and therefore will be less likely to struggle to pay your mortgage off.
• They are more valuable. Features such as solar panels and more efficient energy are more attractive than properties without eco features. Green houses are also more likely to hold their value even if the market dips, making them a safer option for a lender.

Are green mortgages cheaper?

Depending on the lender, taking out a green mortgage could well end up being cheaper for you. A lower interest rate means the total you’ll pay back will be lower than a home without eco features. However, it’s all relative because homes with green features may be more expensive to buy than other houses of the same size.

What is a green home?

A green home is energy-efficient – it uses less energy to run, and the power it doesn’t use does not go to waste, by using smart storage functions.

You can see how green your home is by checking its Energy Performance Certificate (EPC), which gives homes an energy efficiency rating from A to G.

Lenders will likely offer green mortgages on homes with an EPC rating of A or B. New build properties are more likely to be eligible because they are built with energy efficiency in mind. Always check the stipulations of the lenders you are considering because you could make improvements to your existing home and still reap the rewards of a green mortgage.

Who is eligible for a green home mortgage?

Anyone can potentially get a green mortgage, as the qualifying criteria are based on the house you’re purchasing. As mentioned earlier, it all depends on the energy rating your property holds. If you are lower than an A or a B, then it’s unlikely you’ll be able to get an eco-mortgage - unless your provider allows extra borrowing for green improvements.

Buy-to-let mortgages are also seeing changes to become more eco friendly. The government implemented new regulations which will come into play from 2025, where rented properties need to have a rating of C or above. We’re yet to know if banks will offer green buy-to-let mortgages, but already the government is encouraging landlords to be more green.

Who offers green mortgages?

Some lenders that currently have green mortgages on the market are

• NatWest
• Barclays

Nationwide and Halifax offer Green Reward schemes, with a cash incentive for purchasing a home that is A or B rated, but not lower rates on the mortgage itself. In addition, Nationwide and TSB currently offer discounted rates on ‘green additional borrowing’ for homeowners who want to borrow more on their mortgage to make improvements on the property.

There are specialist lenders such as Ecology who offer different products for different purposes, so always do your research to ensure the lender has the right deal for your home and needs.

In summary

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