What is a green mortgage & how will they revolutionise home energy efficiency?
Lenders are offering prospective buyers and homeowners cheaper rates and cashback deals for mortgages on more energy efficient homes
We all try and do our bit for the environment, but the overall impact of living can take quite a toll on the planet. UK National Statistics show that residential properties make up 15% of UK climate emissions, while the Climate Change Committee (CCC) reports out of 29m UK homes, 19m have an EPC rating falling below C.
Following the UK’s commitment to bring greenhouse gas emissions to net-zero by 2050, the CCC advised UK homes should have an EPC rating of at least C from 2028 to meet this goal.
With this in mind, the UK Government is strongly backing the rise in green mortgages – encouraging mortgage lenders to support homeowners looking to improve the energy performance of their homes.
In this article, we’ll look at what green mortgages are, how they work and whether they’re a cheaper alternative to a standard deal.
EPC rating explained
An energy performance certificate (EPC) is the UK standard for understanding how energy efficient a property is and what kind of environmental impact it leaves.
EPCs are graded in bands from A to G, with A rated properties being the most energy efficient and G rated properties being the least so. The band is decided based on the overall score of the property, which is calculated on a range of factors.
Introduced in 2007, an EPC is required when building, renting, or selling a property. New build properties should have a predicted energy assessment (PEA) available if listed for sale before they’ve been finished. EPCs remain valid for 10 years, but you don’t legally need to renew unless the property is sold or let to new tenants. You can find recorded EPCs in the government’s online register.
Outside of just measuring a properties energy performance, an EPC can give you an idea of how much you can expect to pay for utility bills, what kind of environmental impact your home has and what you can do to improve the energy efficiency of your property.
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.
How can we help?
If you’re looking to find a mortgage for your dream home and think a green mortgage might be right for you, get in touch with one of our brokers. Beside helping you find out if a green mortgage is suitable, we can help you find the lenders most likely to accept your application and the best product for your situation
Why use a mortgage broker?
Most of our customers have had some form of credit difficulties, from low credit score, missed payments or declined a mortgage elsewhere.
About Clever Mortgages
We specialise in assessing an individual’s situation, and finding the right mortgage solution for them. We can help:
- With remortgages, buy-to-let, and first-time buyers mortgages. We have experts who cover these areas
- Even if you’ve got bad credit – we help people every day with a variety of credit histories to find the right mortgage
- With applications, as we’ll take the hassle away. We require your details once and we’ll know the best lenders for your circumstance
- Our team know the lenders that are most likely to say ‘yes’, and give you the best rates
What should I do next?
- You enquire online with us today or request a call back
Our simple form takes a couple of minutes to fill in, this gets the ball rolling
- One of our experts will give you a call to find out more about your situation
We have experts in remortgaging, who focus solely on helping customers save money
- We do all the hard work for you
We search the market for the trusted lender that’s right for you
- Our expert will get back in touch
We can guide you every step of the way, and we’ll always keep you up-to-date with progress
Having over 15 years in financial services Sarah ensure our clients stay fully informed on the progress of their applications and supports until the day they complete
Call us on: 0800 197 0504