If you’re hoping to buy a home, it’s likely you’ll need a mortgage to help you fund the purchase of your property.
When it comes to homebuying, the idea of a mortgage is nothing new, but what about green mortgages? How do they differ from a regular loan and how might you be able to get one?
As part of our Sustainability Series, we’re diving into just that and covering the basics you need to know to help you get a better understanding of green mortgages.
What is a green mortgage?
There are plenty of mortgage products available in the market so it’s always best to do your own research and speak to a mortgage broker to understand the options that are out there. That way, you can get the best support and guidance for you and your circumstances.
Green mortgages are just one kind of mortgage product, but given the increased focus on energy efficiency in the property industry, they’ve gained more and more attention in recent times.
Green mortgages incentivise homebuyers to purchase an energy efficient home or improve the energy efficiency of their property to make it greener.
To increase the appeal of purchasing a more energy efficient home, green mortgages can offer a better interest rate, an increased loan amount, or in some cases cashback or an additional loan for making home improvements to better the energy efficiency of the home.
With this in mind, the word “green” in the name refers to the property in question rather than the mortgage product itself. The home the mortgage is being taken out for needs to meet certain energy efficiency criteria to qualify. Therefore, the mortgage product isn’t “green” itself, instead with a green mortgage, your lender will reward you with incentives for living in an energy efficient home.
While incentives can vary, the key thing to remember is that a green mortgage is targeted at green homes and incentivises borrowers to buy an energy efficient home or undertake renovations to make a property more energy efficient.
Who qualifies for a green mortgage?
As alluded to in the definition of a green mortgage, they’re available for homebuyers who are purchasing an energy efficient home or making green improvements to a property to make it more energy efficient. In some cases, they’re also available for re-mortgagers too.
When applying for this kind of mortgage, criteria can vary from lender to lender and from loan to loan, so it’s important to do thorough research and be mindful that conditions can change case by case.
While different mortgage products will require you to meet different criteria, one common thing which will have an impact on your ability to qualify for a green mortgage is the Energy Performance Certificate (EPC) rating of your property.
In many cases, when buying a home, to qualify for a green mortgage, the property must have an EPC rating of A or B. An EPC is valid for ten years and one is required for most residential UK properties apart from some exceptions such as places of worship, listed buildings, and temporary structures. EPC ratings range from A to G with A being the most energy efficient rating. In many instances, when a home is for sale the EPC rating of the property is included as part of the listing, but if you’re having trouble finding the EPC rating of a home, be sure to speak to the estate agent. You can also learn more about EPC’s here.
Another way to qualify for a green mortgage is by making green improvements to better the energy efficiency of your home. These improvements could be renovations such as installing solar panels or replacing single glazed windows for example. For making these changes, your green mortgage lender may reward you with lower interest rates or cashback on what you’ve borrowed to make the improvements once they’ve been made and your home meets the required level of energy efficiency.
The pros and cons of green mortgages
Pros
- Help save the planet and your pennies: By purchasing a greener home that qualifies for a green mortgage, or making green improvements to your property, you’ll also be doing your bit for the environment. Homes which are more energy efficient can lead to reduced emissions making them more environmentally friendly, and can also help you save money on your energy bills through lower running costs.
- You can benefit from more affordable interest rates: An incentive that some lenders offer as part of their green mortgage products is more competitive interest rates on repayments, providing your property meets the energy efficiency requirements to qualify.
- You could get an extra loan or cashback to cover home improvements: Rather than benefitting from improved interest rates, some lenders’ green mortgage products offer cashback on any additional money you borrow to make eco-improvements to your home. This can make green mortgages a helpful option for making your current home more efficient.
- You could get an increased loan amount: As an incentive to invest in a more energy efficient home, some lenders may increase the loan amount you can borrow with a green mortgage which could open up more opportunities for the kinds of properties you can afford.
- Improved property values: Lenders tend to view energy efficient properties as less risky purchases and more likely to hold their value over time. As demand for energy efficient properties rises, there’s a chance your home could be worth more as time goes on as efficient features can add value to a property.
Cons
- Not every home qualifies for a green mortgage: As certain criteria must be met for a home to be eligible for a green mortgage, such as having an EPC rating of A or B, not every property will qualify for one.
- The lender might not be “green”: The term “green” in green mortgages relates to the property the loan is being taken out on. This means the mortgage itself isn’t “green” and therefore, there’s also a chance the lender may not be “green” either as they could be funding industries that have a negative impact on the environment.
- Green mortgages might not provide the best rate in the market: While some lenders offer improved interest rates with green mortgages as an incentive for owning an energy efficient home, this doesn’t necessarily mean the rate offered with the green mortgage will be the best rate in the market. You may be able to find cheaper mortgage deals if you look around and compare several lenders and mortgage products, so it’s worth speaking to a mortgage broker to get a better picture of what’s available to you.
Where can you find more information?
As well as looking at the different mortgage products available with different lenders, it’s worth consulting a mortgage broker to get a rounded understanding of what’s available and what may work for your circumstances.
There are also plenty of additional online resources to support your own research too, and websites such as Money Saving Expert, the Financial Conduct Authority (FCA) and Mortgage Advice Bureau to name a few that cover more on the basics of green mortgages if you’re particularly interested in finding out more about this type of loan.
Content provided by OnTheMarket.com is for information purposes only. Independent and professional advice should be taken before buying, selling, letting or renting property, or buying financial products.
