What are green mortgages?
Have you ever seen references to green mortgages in the media and wondered what they were? In recent years, there has been a surge in the popularity of green mortgages because we are moving towards a more eco-friendly style of living. Green Mortgages are part of this move offering incentives to buyers and homeowners who choose or upgrade to energy-efficient properties. Incentives offered include discounted mortgage rates and cashback helping borrowers to save money on buying their property.
Green mortgages were launched as part of a UK government pledge to achieve net zero carbon emissions by 2050. Consequently, the government wants the vast majority of UK properties to have an energy rating of at least C. The hope is that by offering incentives this will encourage borrowers to purchase energy-efficient homes or improve their current homes.
How do green mortgages work?
A green mortgage works in much the same way as a standard mortgage. You’ll borrow against a property for a set term and repay the principal balance along with the interest each month. With green mortgages, you get a reduced rate or receive cashback so they should be cheaper than a standard mortgage. Unfortunately, this isn’t always the case and greener mortgages can be more expensive. Speak to our mortgage team who can tell you more.
Why choose a green mortgage?
The main benefit to most homeowners of choosing a green mortgage is the incentives, however, there are other benefits.
Properties with green mortgages are more likely to:
- Increase in value. – As we move towards the government’s net zero deadline, properties with high energy ratings are more likely to increase in value. In addition, in the event of economic uncertainty, these types of homes are more likely to retain their value.
- Have lower energy bills. – The more energy efficient the property is, the lower your energy bills will be.
- Be more in demand. – With lower energy bills, it’s more likely prospective buyers will want more energy-efficient homes compared to those were poorer ratings.
- Have lower mortgage interest rates. – With the wide availability of green mortgages on the market, there is more competition which helps to reduce rates. More lenders are likely to start offering green mortgages as the condition of the property and its energy efficiency make it less risky compared to other types of properties and more attractive to home buyers.
What properties are eligible for green mortgages?
To be eligible for a green mortgage, your property will need to have an EPC (Energy Performance Certificate) or PEA (Predicted Energy Assessment) rating of A or B, and sometimes C. Some lenders also only offer green mortgages for new build properties so this is something to bear in mind. However, If the subject property does not have a high enough rating and you are the owner, it may be possible to carry out some home improvements to increase the rating.
Things you can do to improve your property’s energy rating
- Improving insulation (to walls, floors, loft etc.)
- Adding LED lights
- Installing new doors and windows
- Upgrading your boiler or switching to a heat pump
- Installing solar panels
Whilst making the above changes will not guarantee an improved rating, it could certainly help to make your property more energy efficient, but it also comes often at a substantial cost. An energy assessor can tell you what impact any proposed changes might have.
What’s an EPC?
An Energy Performance Certificate (or EPC) is a document that provides an assessment of how energy efficient a property is. They are valid for 10 years and are required whether you are buying, selling or renting out a home. The assessment is carried out by an accredited domestic energy assessor but an estate agent (or letting agent) will normally arrange this for you. The accredited assessor will grade the property between A and G depending on how energy-efficient they think the property is. Typically, the older a property is, the worse the rating with most new builds performing more highly. The EPC rating is then recorded on the EPC register which you, the homeowner or buyer can check.
An EPC can also show you what action is needed to improve the energy efficiency of the property.
New properties that have not completed construction will not have an EPC rating, instead, a different system is used known as a PEA (Predicted Energy Assessment). These are normally used for ‘offplan’ purchases and give an estimate of what the rating is likely to be.
Which lenders offer green mortgages?
Many lenders offer green mortgages to buyers including traditional lenders and more specialist ones. Each has its own individual lending criteria which set out under what circumstances they will lend. There are several lenders who only provide green mortgages on new build properties so this is bearing in mind. Some lenders will often have loan-to-value restrictions which means you may need to put down a bigger deposit compared to other types of mortgage. To find a mortgage that’s the right fit for your circumstances, speak to our team of mortgage advisers.
Why choose Simple Fast Mortgage for your green mortgage?
Green mortgages may be a recent entry to the mortgage market but the team at Simple Fast Mortgage have extensive knowledge of the mortgage market and can help you find the perfect green mortgage for you. In our experience, green mortgages may not always be the cheapest mortgage on the market so if that is your main motivation for choosing this type of mortgage, our team can discuss what other options are available to you. Green mortgages can also require more paperwork upfront due to the requirement for an EPC, but when you work with us our team will handle all this for you. Get in touch with our helpful mortgage advisers to start your mortgage application today.
Green Mortgages FAQs:
Can I get a green BTL mortgage?
Green mortgages aren’t exclusive to the residential mortgage market and there are many enders who offer Buy To Let (BTL) Mortgages as well. For more information including the criteria and to find out how much you can borrow, contact our friendly team.
How much can I borrow on a green mortgage?
Individual lenders use different mortgage calculations to calculate how much you can borrow for your mortgage. They also take different income and commitments into consideration which can mean that one lender may offer more than others. To find out exactly how much you can borrow for your green mortgage, speak to our friendly team who will be able to advise.
Can I get a green mortgage on an eco-property?
Lenders sometimes consider eco-properties as properties built using non-standard construction techniques. As such, some buyers can struggle to find a lender who will accept an eco-property as security for a mortgage whether or not this is for a green mortgage. Despite this, it’s often still possible to secure financing for your property and other options may be available. Chat with our mortgage advisers today for helpful mortgage advice for your property.