What is a Green Mortgage?

What Is A Green Mortgage you ask?

“Green” mortgages are increasing in availability with the major lenders all offering such mortgage products, plus a wide range of specialist and buy to  let lenders. At We Are Money, we expect a lot more innovation in this area.

If your property has a higher Energy Performance Rating, these mortgages might be for you. The higher rating normally being A or B, although some lenders do accept C. But these of value to clients?

Let’s start off with the numbers.

Unsurprisingly new build properties are of a standard that most (around 83%) have achieved A or B rating. However, only 2.25% of existing stock have attained the same rating since the introduction of EPCs over ten years ago.

So, unless you are financing a residential property that is relatively young the chances are that the property will not be eligible for a Green mortgage from the off. If you are eligible don’t expect a significant perk; Halifax and Nationwide, for example, are (currently) offering a cashback on top of the same product that you would be eligible for if your home was rated C or lower. Virgin Money’s current “Green” product is at the time of writing, offering a 0.10% interest rate saving over 2 years and £300 cashback, but, it is only available for New Build properties.

Green mortgages are not a new concept.

The Ecology Building Society have been quietly offering mortgages with an environmental focus since 1981. They are very much a niche lender, offering self-build, renovation funding or other specialist funding and do not compete with the rate-sensitive mass-market leaders. Their approach is to offer discounts on the interest rate a borrower is charged based upon the energy efficiency of the property. This means that a borrower can be rewarded for improving their home energy efficiently through reduced interest rates for the lifetime of their contract with the lender. This benefit helps make the investment more appealing because currently the savings made through energy bills alone is minimal.

Getting To Net Zero

The UK has a commitment to a Net Zero target and according to NatWest, residential properties make up 15% of the UK total climate emissions. So it can be seen why improving the energy efficiency of homes is important and it will become more so. But, as yet, rewarding property owners for investing in reducing the environmental impact of their property appears to be some way off. Perhaps the approach taken by Ecology Building Society is a sign of the future as the focus on energy efficiency should not be with the new build sector but the significant majority of aged properties that make up our villages, towns and cities.

In summary, lender sentiment is to contribute towards the Net Zero target and reward environmental property, but just how to do that is unclear. The current “Green” mortgages are, in large, not much more than giving a nod to a need and for many not an option. For the few that may have access they are not receiving much more than a re-jig of a “Non-Green” product.