Craig explores the fascinating topic of Green Mortgages: what are they and how do you qualify?
What is a Green Mortgage?
The government has been encouraging mortgage lenders to develop green mortgage products since publishing its clean growth strategy in 2017. It’s estimated that around 14% of the UK’s total emissions are created by housing.
A cut in domestic emissions could have a significant impact on global warming. With climate change constantly in the headlines, and the government aiming to hit net zero for carbon by 2050, energy efficiency in the housing sector is coming into sharper focus.
As a way to encourage people to buy energy-efficient homes, some lenders are now offering green mortgages. These provide preferential terms for energy efficient properties, in the form of lower interest rates, cash incentives or higher loan amounts. We expect to see green mortgages becoming more and more commonplace.
What does an energy efficient home look like?
The government has set ambitious targets for new build homes to be highly energy efficient and zero carbon ready by 2025. You can also make improvements to an existing home to improve its energy efficiency.
Energy efficient homes are well insulated, have efficient heating systems and low energy lighting.
Which banks are offering Green Mortgages?
Barclays was the first big lender to launch green mortgage products back in 2018, followed by lenders such as Nationwide, NatWest, Kensington and Saffron Building Society, with the most recent addition being Virgin Money. Each lender has its own criteria with regards to eligibility for green mortgages, as we’ll see below.
Barclays Green Mortgage
With Barclays, the home must be a new build property and have an energy efficiency rating of 81 – which scores A or B on the energy performance certificate, or EPC as it’s called. There are no other specific eligibility criteria. The application process is the same as with any other purchase, and you will benefit from preferential rates.
Kensington Green Mortgage
Kensington rewards customers with a £1,000 cashback incentive on energy efficient homes, or green renovations to existing properties. That might mean buying an older home or simply remortgaging. You have about 12 months to make the energy improvements and claim the cashback reward.
Kensington has also recently launched a new build product where you gain £500 cashback payable after completion on a new home. This is available on homes with an EPC rating of A or B where the Loan to Value is up to 90%.
Nationwide Green Mortgage
Nationwide offers £500 cashback to those buying a property with an EPC A rating. This is scaled down to £250 for properties with a B rating. The cashback is payable on both new build and second hand properties, provided they meet the eligibility criteria.
Nationwide also has a green additional borrowing product that gives a lower initial interest rate than standard, and also supports people to retrofit their homes to improve energy efficiency.
To qualify, you must spend at least 50% of the new funds on energy efficient home improvements, such as loft floor and cavity wall insulation, triple glazed windows, air source heat pumps and electric car charging stations. You could borrow between £5,000 and £25,000 to install these.
Natwest Green Mortgage
NatWest rewards customers who purchase energy efficient homes by offering a discounted two year or five year fixed rate mortgage, and will pay £250 cashback on the day you draw down the mortgage.
The green mortgage range is specifically for residential properties with an EPC rating of A or B.
Saffron Building Society Green Mortgage
Saffron offers a residential mortgage that rewards borrowers with a rate reduction if they carry out works to improve the energy efficiency of their homes.
Virgin Money Green Mortgage
Virgin Money offers a range of new products that are generally priced 0.10% lower than standard products, so you are saving on Virgin’s normal rates. To qualify you must be purchasing a new residential home with a certified energy rating of A or B.
Buy to Let Green Mortgage
Paragon are also offering green deals for properties with EPC ratings of A, B or C. These are aimed at Buy to Let landlords who can access loans at rates as low as 3.5%.
As you can see, eligibility criteria for a green mortgage varies from lender to lender.
What is the Energy Performance Certificate?
A property’s energy performance certificate, or EPC, shows how energy efficient your home is, with a score of between zero to 100. This equates to a scale from A, which is the highest, to G, which is the lowest. Scores of 81 or above qualify for A or B rating.
How can I get a Green Mortgage?
Speak to your mortgage adviser to see if your home is eligible to benefit from the incentives offered by these and other lenders. We’ll compare the criteria, rates and fees to recommend the most suitable deal.