What are green mortgages and when are they the best deals?
What is a Green Mortgage?
A green mortgage is normally offered with either a preferential interest rate and/or cashback if your home meets a minimum energy efficiency level. This is normally based on the property’s Energy Performance Certificate (EPC). Some lenders may offer further borrowing to pay for energy improvements on your property. Every lender will have its own terms and conditions but most offer green mortgages for properties with an EPC rating of A or B.
What is an Energy Performance Certificate (EPC)?
An EPC indicates how energy efficient a property is and a Certificate is required when a house is built, rented or sold. An A rating is given to the most energy efficient homes whilst the least efficient are rated G. The certificate lasts for 10 years. You can check a property’s EPC rating using the Gov.uk website.
If you want your home assessed for an EPC you can also find an accredited assessor on the Gov.uk website, although there is a different process for Scotland.
Do Green Mortgages mean that the bank has green credentials?
No, not really. The only thing that is green about the mortgages is generally the property you are moving into. If you are worried about the lender’s green credentials, more information can be found at Bank Green and Banking on Climate Chaos.
So why are banks offering Green Mortgages?
In Autumn 2021, the Government published its Heat and Buildings Strategy where it stated its proposal which required lenders to disclose the energy performance of their mortgage portfolios. There is a proposal to set voluntary targets for lenders to reach an average EPC band C across their mortgage portfolio by 2030.
To help reach this target the government wants more lenders to incentivise borrowers to make energy efficient upgrades to their homes. This is part of the government’s strategy to make sure that the UK meets its target to reduce emissions by 70% on 1990 levels by 2030 which will help it achieve net zero by 2050.
Are there any genuine Green Mortgage lenders?
Although they don’t provide regular mortgages, the Ecology Building Society is able to help with specialist mortgages for green renovations or conversions. They also specialise in buy-to-let mortgages for projects which meet specific energy ratings and they even offer mortgages for woodlands and moorings!
How do Green Mortgage rates compare to regular mortgages?
A number of the main lenders have at least one type of green mortgage available but for the moment, although green mortgages are attractive in principle, in reality they are often no cheaper that the cheapest mortgages available with other high street lenders. There may be cashback that might reduce your costs overall, but in honesty, until lenders make green mortgages much more competitive, a regular mortgage for a property that would otherwise qualify for a green mortgage will often still be the best deal.
Having said that, greener properties have a positive impact on the planet, so just because a green mortgage might not currently be worth looking for, making your house more energy efficient certainly is. Of course you should normally save money when living in an energy efficient property and at this current time, when energy prices are the highest they have ever been, anything you can do to your home to improve its efficiency will bring down your energy bills as well as lessen your personal environmental impact on the world.
If you are interested in looking at how to improve the environmental credentials of your home, Halifax can help you create a personalised action plan (available to existing and new customers) and Lloyds have an eco-Home tool. Both produce an action plan with estimates of your EPC rating, energy costs and your homes CO2 emissions.
If you would like to discuss green mortgages or any other financial matter, J Finance, will be happy to help. Please contact us without obligation.