As the world battles to become more environmentally friendly, mortgages are doing the same. The structure of our homes will become increasingly vital as we fend off the dangers of climate change. Green mortgages are a way of incentivising and rewarding energy efficient homeowners.
What is a green mortgage?
A green mortgage offers preferential terms if the home you own is sufficiently energy efficient. This may be because you have just moved into an energy-efficient home or it could be because you are adapting your home to improve the energy rating. Most lenders use the property’s Energy Performance Certificate (EPC) to judge whether the home meets their ‘green’ criteria.
The reason that these benefits can be offered is that lenders believe energy-efficient homes will hold their value in the future so they are a less risky investment. Furthermore, if you are spending less on energy bills then you have more disposable income to put towards your mortgage repayments! This is a big green tick from the lender’s perspective.
There are typically two types of green mortgage:
- Benefits for living in an energy-efficient home – the rewards are generally in the form of cashback and / or a lower interest rate. Your property must have an EPC rating of A or B to qualify
- Benefits for improving your home’s energy-efficiency – examples of qualifying improvements include fitting double-glazed windows, installing solar panels or upgrading your home heating system. Additional money that you borrow from the lender to carry out this work will be at a discounted rate or you will receive cashback on the amount borrowed
What EPC rating do I need for a green mortgage?
An Energy Performance Certificate gives an indication of how energy-efficient your home is. The ratings range from A to G, with A being the most energy-efficient. Factors such as heating costs and carbon dioxide emissions contribute to the overall rating. Each certificate is valid for 10 years.
Also included on EPCs are recommendations for how to improve the rating of your home. These could be improvements such as installing double-glazing. Alongside these recommendations is the rating your home could be if you followed each one.
Typically, older buildings have a lower EPC rating. Most new build houses have a rating of A or B from the start, whereas a high percentage of buildings from before 1900 have a rating of C or lower.
When it comes to qualifying for a green mortgage, lenders generally require that your EPC rating is A or B. Some specialist lenders are more strict and only offer green mortgages if you have an EPC rating of A. You can improve your rating through measures like adding insulation, using LED lighting or adding solar panels. Of course, these vary greatly in cost but can save your money on your energy bills as well as potentially with your mortgage!
So will a green mortgage save me money?
Green mortgages fulfil their purpose of offering better rates for energy-efficient homes. However, these better rates are only guaranteed to be better than that particular lender’s non-green rates. There are currently around 10-15 lenders that offer green mortgages, whereas there are many other lenders offering non-green mortgages.
That lack of choice of green mortgages means that generally you can find a better deal while searching the entire market rather than just the lenders that will give you a special green mortgage deal. Of course there will be times when the lender offering you the best rates do have a green mortgage and if you qualify then you will benefit from that.
Green mortgages are still in their infancy. As more lenders offer these, the benefit of searching specifically for them will be greater than it is now. That being said, do not be put off making your home energy-efficient. There are many cost savings to be made without factoring in a potentially cheaper mortgage. By the time you remortgage, there may be plenty more green mortgages available.
The bottom line is that to avoid the disasters of climate change, all of our homes need to be considerably more energy-efficient. If lenders can play a small part in encouraging homeowners to make this transition, then that is no bad thing. We have a collective duty to protect our and future generations from the potentially devastating effects posed by global warming.
If you would like to find out more about green mortgages or are interested in using our services to find you one, then please do not hesitate to get in touch. We offer free initial meetings with no obligation to proceed.
DISCLAIMER: Failure to make mortgage repayments could result in your home being repossessed.