The world of mortgages can be a complex one. With various rates, deals, incentives and costs, it can be a minefield that proves tricky to navigate. Do you go fixed rate? Do you choose a portable mortgage? Should you go green? Wait….green? Yes, green mortgages are a thing.
Green mortgages are a relatively new addition to the mortgage market and put a focus on homeowners looking at the environmental impact of the property they want to buy or remortgage. If the home matches certain environmental standards, a lender may offer cashback or better interest rates on the mortgage.
In this blog we take a look at green mortgages and uncover what they are all about.
How do green mortgages work?
With environmentally friendly initiatives being set across a host of industries, it was more or less guaranteed that mortgages would, at some point, find themselves included. By encouraging homeowners to take a greener look at the home they are seeking a mortgage for, lenders are rewarding them with cheaper rates or cashback should the property meet certain energy efficiency standards.
You’ll need a home that has an EPC rating of A or B to be able to apply – or at least show that you are making sufficient changes to improve the efficiency rating of the property.
The mortgage itself is much the same as any standard mortgage you would have. Payments are still expected monthly, interest still accrues. You just have the benefit of more favourable rates or cashback.
The mortgage itself though is not green as some may think. The lender is not doing anything specific in relation to the environment by providing it.
Are green mortgages cheaper?
They are, and they aren’t. A green mortgage from one lender will likely be cheaper than their standard mortgage but another lender may offer a standard mortgage at a cheaper rate than the green one offered by your another lender.
Why do we have green mortgages?
The global focus on monitoring carbon emissions has led to a variety of initiatives being created. In the UK, there is a target of reaching net zero by 2050 with properties expected to hold an EPC with a C rating or better by 2030. Britain has some of the oldest housing stock in Europe and according to Statista, most of the housing in England pre-dates 1919. This means much needs to be done to bring them up to suitable EPC levels. Mortgage-based incentives such as green mortgages are helping bring us closer to this target.
For lenders, the benefit is two-fold. On the one hand, they are helping people finance the purchase of a more environmentally friendly home, on the other they see less risk in lending against such a property.
Risk is, after all, something lenders will always consider. If a property is going to cost less to run, the borrower has more chance of keeping up to date with mortgage payments. In addition, with the incentive of upgrades delivering cash back or lower rates, lenders see that the home is likely to increase in value, ensuring they get their money back when it is sold.
How do I apply for a green mortgage?
Green mortgages aren’t available with every lender although that is slowly changing as more lenders see the appeal. Your first port of call would be a trusted mortgage broker. They will be able to guide you towards the right lenders with the more favourable deals.
Green mortgages are, for the most part, only offered to those who are either buying or remortgaging a home with an EPC of an A or B rating. You’ll find yourself eligible for better interest rates and potentially cashback the better the EPC rating.
In some cases, lenders may consider a green mortgage if you can show improvements are being made or if renovations are planned that could improve the efficiency of the property.
As with standard mortgages, all lenders have their own specific criteria and what may make you eligible with one lender may not with another.
The application process is pretty much the same as with any other mortgage, aside from demonstrating the EPC rating of your home, you’ll still need to prove affordability, identity and so on.
What are the benefits of a green mortgage?
The benefits of the green mortgage are wide-ranging, but some can go unnoticed in the short term.
Lower rates
Green mortgages tend to have lower rates than the standard mortgages offered by the same lender. With lower rates come lower monthly payments. Lower monthly payments mean more money for you to put towards home improvements, holidays or life savings.
Reduced energy bills
In a time when every penny counts more than ever, saving on your energy costs is certainly welcome. With a more energy-efficient home, you’ll be using less energy to heat and light it. Combine these savings with your reduced mortgage payments and you could see that at the end of each month, you have a nice little amount to put away.
Increased property value
When it comes to selling your home, you’ll want to make as much money from the sale as possible. A home that aligns with the green initiatives of the country will rise in value much faster than a home that requires significant work to bring it up to standard. The costs of making further green changes will only rise as demand increases. Factoring in these changes now will result in a further saving that brings its reward when you come to sell.
Are there disadvantages to a green mortgage?
There certainly can be. As we touched upon earlier, a chat with a mortgage broker will help you find the advantages and disadvantages of having a green mortgage. Before you have that chat, we’ve put together some of the more common disadvantages a green mortgage could bring.
Not necessarily cheaper than standard mortgages
Whilst the green mortgage offered by your provider may be cheaper than the standard offering they have, it may not be cheaper than the standard mortgage being offered by someone else. Shop around to get an idea of expected rates and then approach your broker with what you’ve found. They will dig deeper and find the true value for you.
Potentially expensive
If you are trying to make your home eligible for a green mortgage the move from a lower to a higher EPC rating could cost significant sums. You would then need to weigh up whether that cost will be offset by the savings on the new mortgage deal. Data published last year indicated that you could be spending around £4,000-£13,000 to upgrade from a D rating to a C. Remember a green mortgage only applies to those properties with an A or B rating, or those working on reaching those ratings.
Limited options
Not all lenders are currently onboard with green mortgages so you could find it hard to see your needs met.
Which lenders offer green mortgages?
Now many of the popular lenders offer green mortgages. You could find them offered by NatWest, Halifax and Barclays among others for example. There are also several of the lesser-known lenders offering green mortgages.
A green mortgage can be a great way to reduce your monthly outgoings, but it is important to remember that more affordable deals may be available via other lenders. You should also consider the cashback on offer. £1,000 cashback may sound enticing but if the interest is higher than other lenders’ offers, you could be spending that £1,000 in interest payments. For clarity, peace of mind and advice without bias, speak to our team at Mortgage Saving Experts. We can help with all types of mortgages and find you the deals that save you the most money.
