Green mortgages

A green mortgage offers incentives to homeowners and prospective buyers who opt for more energy efficient properties, such as better rates or cashback deals. Green mortgages have been on the market for a few years, but recent times have seen a rise in the number of green mortgage products available and lenders providing them.

Green mortgages aren’t limited to just new-builds or first time buyers, with products being offered for remortgages, buy to let properties, and homes destined for renovation.

Green mortgages work the same way most traditional mortgages do, the difference is largely the incentive- put in place to encourage buyers towards more energy efficient properties and to drive homeowners seeking a better remortgage to make environmentally-friendly improvements. The benefits offered with a green mortgage will vary with each lender, but three main deals have become evident on the market;

• Lower rates – some lenders are offering cheaper rates to borrowers purchasing more energy-efficient homes, with the savings typically starting for properties with an EPC rating of B. Some lenders lock this deal to new build properties, but more products are emerging that offer lower rates for existing homes and properties that have undergone renovations to improve the EPC.
• Cashback deals – some standard mortgages are being offered with a cashback incentive if the property scores an EPC rating over B, with the amount increasing with the rating. A few lenders are even offering a bundle of benefits so to speak, with both lower rates and cashback deals.
• Funding home improvements – some lenders are going the extra mile, offering homeowners the chance to apply for extra borrowing at largely reduced rates to make energy-efficient home improvements. Other lenders are offering cashback of up to £1000 to people buying or remortgaging a property, with the stipulation of raising the EPC rating by at least 10 points within a year.

The criteria for a green mortgage will vary from lender to lender, but the majority of deals are offered on properties with a minimum EPC rating of B, with the best deals being offered for homes with an EPC rating of A. Mortgage lenders will expect evidence to support your application, asking for a valid EPC, or a PEA if the property is a new build. If you haven’t been provided with one, it’s worth contacting the developers or estate agents to ensure your property meets the requirements.

The maximum loan-to-value (the amount you are seeking to borrow vs the amount you have saved as a deposit) will vary between each lender and your personal credit situation, but some green mortgages offering LTV’s as high as 90% have been available on the market, making them fairly accessible for prospective borrowers.

Lenders’ usual affordability checks will still be in place, and the typical application process will still need to be followed. Lenders will consider the size of your deposit, the property you’re looking to purchase, your personal finances and credit history when deciding whether to approve an application. If you want to find out if you’re eligible to apply for a green mortgage and what kind of rates you might be able to access, get in touch with one of our specialist brokers.

Commonly, those seeking more favourable rates or deals for a mortgage product might look to improve their credit score or save a larger deposit, and whereas these are both viable ways to access such deals, green mortgages mean the EPC rating of the house you look to buy could also help you save money on your mortgage.

Green mortgages get their attractiveness from the appeal of favourable rates, so largely they will tend to be on the cheaper side of the market in terms of interest rates and the deal presented. Additionally, more energy efficient homes tend to be far cheaper to run, as you aren’t wasting as much heat, water or electricity.

This doesn’t necessarily mean that a green mortgage is the cheapest deal available to you though, as there are hundreds of lenders offering thousands of mortgage products which means a standard mortgage could still work out cheaper. This may change as more green mortgages appear, but as it stands there are some standard mortgage rates that compete with that of a green one. That being said, if your goal is to access cheaper borrowing for environmentally-friendly improvements, a green mortgage could still work out cheaper overall if it comes with the right incentives.

The amount of variables mean the type of mortgage that will work out cheapest (if that’s your goal) will entirely depend on your personal financial situation and the property you’re looking to buy. This is one of many reasons it’s important to speak to a mortgage broker, to get the full picture, and make sure you’re going for a product that fits your needs.

If you’re looking for a green remortgage to benefit from the discounts but don’t quite have a high enough EPC, there are steps you can take. Improving your EPC rating has countless benefits, from reducing your energy bills and carbon footprint to increasing the value of your home and its efficiency. If you’re looking to raise your EPC, here are a few things to consider;

• Replacing light bulbs with LEDs
• Getting a smart electricity meter
• Replacing your boiler with a newer, more efficient model
• Installing solar panels to produce cheaper and more environmentally friendly energy
• Installing or upgrading the insulation for your floor, walls, roof and attic
• Double glazing your windows

To get a new EPC you will need to pay for a registered assessor to carry out an inspection, these typically cost from £60 to £120 so it’s worth checking locally to find a few quotes.