With climate change concerns and the high cost of energy bills, it makes sense to consider the energy efficiency of a property that you’re either buying or already own. Green mortgages reward borrowers for this with financial incentives and more flexible terms. But how ‘green’ are green mortgages in reality?
What is a green mortgage?
First, we’ll explain what a green mortgage is. This type of mortgage is designed to encourage borrowers to own energy-efficient properties. This can be achieved either by buying a property that is suitably energy efficient or improving the property you already own to reach a required level of energy efficiency. Lenders typically expect the property to have an Energy Performance Certificate (EPC) rating of A or B to qualify.
Why get a green mortgage?
As a reward for investing in energy efficiency, lenders offer financial incentives for green mortgages. These can include a lower interest rate, which reduces your monthly payments and makes your mortgage cheaper overall, or cashback once your mortgage application has been processed.
Some lenders also offer better terms as green financing is considered to be a lower risk. This may enable you to borrow a higher amount or you may be able to make overpayments on your mortgage without being penalised by an early repayment charge.
Aside from these benefits, having an energy-efficient property is cheaper to run so you’ll save on your energy bills. Energy-efficient properties also retain their value over time and tend to have a higher resale value. If you’re making green improvements to your home, this can result in increasing its value.
How to get a green mortgage
As well as passing the lender’s affordability and credit checks as you would for any residential mortgage, you need to provide proof that the property meets their energy efficiency requirements. This can be done by providing:
- An Energy Performance Certificate (EPC). This certificate details the energy efficiency of the property. It has a rating system of A to G, with A being the most energy efficient and G being the poorest rating. Most lenders require a rating of A or B to approve a green mortgage.
- A Predicted Energy Assessment (PEA). For a new-build home that is still being constructed, you’ll need to get the PEA from the developer. This details the estimated energy efficiency and environmental impact of the property before it has been completed. Lenders will use this in place of an EPC to determine whether or not you can qualify for a green mortgage.
How ‘green’ are green mortgages?
The incentives offered for green mortgages encourage more borrowers to invest in energy-efficient properties. Sellers know that they can command higher prices for high EPC ratings and are more inclined to improve their properties where they can before putting them on the market. New buyers and existing homeowners understand that the more energy efficient a property is, the cheaper the energy bills will be. Energy-efficient properties also retain their value over the long term.
These factors can persuade a potential buyer to choose an energy-efficient property over one with a lower rating. They can also encourage existing homeowners and landlords to make green upgrades to their properties. In this respect, the mortgages are green as they promote more sustainable practices that help the environment.
However, although a lender may offer green mortgages, that may be the extent of their green credentials. They may still invest in industries that are harmful to the environment, such as fossil fuels. To check how green a lender really is, Bank.Green has compiled some information based on various lenders’ green criteria.
Discover the green mortgage options available to you
If lowering your carbon footprint, not to mention your energy bills, by investing in an energy-efficient property sounds appealing, give our mortgage brokers a call on 01322 907 000. They can advise you on the property requirements you need to meet, whether buying a new property or financing green improvements for your current one.
They know which lenders offer green mortgages and can compare the deals available as well as those for non-green mortgages. That way, you can check any savings you stand to make and the flexibility of the terms offered by different lenders for both types of mortgages. Our brokers will provide you with impartial advice, enabling you to choose the right type of mortgage to suit your financial situation as well as your environmental goals.