As the push for new solutions to the environmental crisis continues, one potential answer to carbon emissions could be “green mortgages”.
These are a type of housing loan that promotes energy-efficient properties. Mortgage Strategy reports that there has been a 76% year-on-year rise in green mortgages being offered by lenders, with over half of all lenders now offering them.
In fact, the above source goes as far as stating that 1 in 10 lenders believe that green mortgages will eventually replace traditional ones.
But what is a green mortgage? And could they really be the future of borrowing? Continue reading to discover everything you need to know about the new lending practice.
A green mortgage is a housing loan that promotes properties with high EPC ratings
Green mortgages work similarly to traditional home loans, with a few key changes. Instead of being offered on any property, a green mortgage promotes energy-efficient properties.
This energy efficiency is measured by the property’s Energy Performance Certificate (EPC) rating. For example, a lender will typically offer lower interest rates on a green mortgage for a property with a good rating, such as A or B.
Meanwhile, lower EPC ratings, such as C or D, would see a borrower access less competitive rates.
Lenders may also be willing to offer cashback rewards on any green home improvements you make, such as having solar panels installed or double-glazed windows fitted.
These improved rates and cashback rewards are designed to incentivise you to purchase more energy-efficient homes in order to help the environment.
Many high street lenders including NatWest, TSB, and Virgin Money are now offering green mortgages.
Now, you may be asking yourself: what’s in it for the lenders? Well, many lenders typically believe that green properties are more likely to hold their value over time, making loans on them less risky.
Also, if you’re paying less for your energy bills each month, lenders predict that you’ll be less likely to miss your mortgage repayments. So, it’s a win-win.
A green mortgage could save you money in your energy bills as well as help the environment
Perhaps the most obvious benefit of a green mortgage is the positive impact they could have on the environment.
If more people are encouraged to buy energy-efficient homes, or make green home improvements, the environment will benefit overall. This comes at a time when many have been calling for carbon emissions to be reduced for the sake of the planet.
If the demand for energy-efficient homes is higher, property developers could start making homes more energy-efficient to begin with.
Also, energy prices have been on the rise over the past year due to several factors, including high inflation and Russia’s war in Ukraine. So, if you were to get a green mortgage and purchase an energy-efficient property, your monthly energy expenditure could decrease, and you’ll have more money for other expenses.
And, as mentioned, if your home isn’t energy-efficient and you wish to make green home improvements, these can sometimes be expensive. Indeed, Money Saving Expert reports that it costs an average of £6,500 to install solar panels.
So, the cashback rewards that lenders may offer on their green mortgages could see you recouping some of the costs of green home improvements.
Green mortgages typically offer less competitive rates when compared to traditional ones
While green mortgages are typically great for the environment, they could be more expensive than traditional mortgages, especially since there’s been so much uncertainty in mortgage markets lately.
In fact, green mortgage rates are typically less competitive. As of 2 December 2022, Money Saving Expert states that a 75% loan-to-value (LTV) two-year non-green mortgage from Principality BS would offer a rate of 5.6%.
Meanwhile, a 75% LTV two-year green mortgage from NatWest on the same property would offer a rate of roughly 5.82%.
While the difference in rates between green and traditional mortgages is slight, this comes at a time when the cost of living crisis is causing many people looking for ways to save money wherever possible. So, it’s up to you to decide whether the typically higher repayments are a worthy trade-off for energy efficiency.
Get in touch
Green mortgages could potentially open up a new avenue for being environmentally friendly.
So, if you would like to discuss ways you can do your bit for the planet while remaining financially astute, please email enquire@london-money.co.uk or call (0207) 808 4120 to find out how we could help you.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Think carefully before securing other debts against your home.