Thinking about getting a mortgage? Well did you know they now come in green? It’s true. Green mortgages are becoming increasingly popular in the UK, rewarding home buyers with lots of lovely incentives for being more environmentally conscious.
What is a green mortgage?
So what is a green mortgage exactly? Simply put, they’re specialised mortgage products that offer better terms if you choose a more energy-efficient property or make a commitment to undertaking energy-efficient upgrades.
The benefits of green mortgages.
Why choose a green mortgage? There are lots of good reasons, but broadly, they can be summed up into two key benefits.
Financial advantages.
We all love a financial incentive or two. And that’s partly what makes green mortgages so clever. The greener you are, the better it is for your wallet. It’s a win win. Here’s just some of the ways your bank balance benefits if you buy a more energy efficient property or improve your new property's efficiency after you’ve moved in.
Lower rates.
With some lenders, green mortgages offer lower interest rates, meaning cheaper repayments and more money in your pocket.
Cashback.
Many lenders offer cashback bonuses for choosing a property with a high energy efficiency rating or for agreeing to making energy efficiency upgrades.
Increased borrowing.
In some cases, green mortgages can even offer you a higher borrowing amount - this means more choice and buying power for you.
Environmental impact.
Green mortgages are great for the environment and are playing an increasingly important part in the fight against climate change. Here’s just some of the ways they’re already making a difference.
Lower carbon emissions. By incentivising energy efficient homes, green mortgages help reduce energy consumption and greenhouse gas emissions.
Better air quality. What a breath of fresh air. By reducing our energy consumption we lower air pollution levels, this benefits our public health and the environment.
Promoting sustainable housing. Greener mortgages mean greener houses. By encouraging the construction and renovation of homes with eco-friendly features, Britain gets a more sustainable housing stock.
Resource conservation. Energy-efficient homes will usually feature water-saving fixtures (like low-flow shower heads or dual-flush toilets) and sustainable building materials (such as recycled, reclaimed, or locally sourced materials).
Increased awareness. Fame is a wonderful thing. Green mortgages help raise awareness about the importance of energy efficiency and sustainable living.
Green mortgage eligibility criteria.
Sadly, not all homes will qualify for a green mortgage. When applying, the key factor lenders will look for is the property's Energy Performance Certificate (EPC) rating. This is an A-G graded certificate showing how energy efficient the property is.
Energy efficiency standards.
To qualify for a green mortgage when you're buying or remortgaging a home, your property must have an A or B EPC rating (although some lenders may accept a C EPC rating in certain circumstances). When you’re choosing or evaluating properties, it’s worth noting that new-build homes tend to have high EPC ratings due to their modern methods of construction, materials used, and regulations they’ve satisfied.
Application process.
Liking the sound of green mortgages? You’ll be pleased to know that the application process is not too different to regular mortgages. Here’s the process you can expect if you apply.
Assessing energy efficiency.
You'll need to get an Energy Performance Certificate (EPC) for your property. If it doesn't meet standards, you’ll need to make energy efficiency improvements. These could involve things like installing insulation, upgrading your heating system, or harnessing renewable energy sources with solar panels.
Research lenders and their criteria.
Lenders will have different requirements for green mortgages. Some may offer green mortgages for new-build homes, and others may provide them for renovations to improve energy efficiency.
Use a mortgage calculator.
A lot of lenders will give you handy online calculators, so you can work out how much you can borrow. This will give you a good idea of your budget before you apply.
Apply for an agreement in principle (AiP).
This is an initial evaluation of your eligibility for the mortgage. It’ll ask for basic information about your income, your expenses, and the property you're interested in.
Gathering documentation.
You’ll need to get hold of all the relevant documents for your application, including proof of your property's EPC rating, income statements, bank statements, and your identification.
Submit your application.
You can approach multiple lenders directly or work with a mortgage broker who specialises in green mortgages.
Property valuation.
The lender will usually arrange for a valuation of the property to make sure it meets their criteria needed for a green mortgage.
Underwriting process.
The lender then will assess your application, including your credit history, income, and the property's energy efficiency.
Mortgage offer.
If your application is successful, the next step will be for the lender to make you a formal mortgage offer.
Completion.
Once you accept the offer and all the legal work is complete, the mortgage funds will be released, and you can proceed with your property purchase or energy efficiency improvements. Happy days!
Green mortgage options.
Just like with regular mortgages, when it comes to green mortgages, there’s an increasing number of options now becoming available. Here we look at two of the most popular options in green remortgaging and green buy-to-let mortgaging.
Green remortgage.
Green remortgaging involves switching your existing mortgage to a new green mortgage deal on your current property. This can be an especially good option if you've already made your home energy efficient or you’re planning to do so.
As with most green mortgages, the requirements of a green remortgage are that your property has an EPC rating of A or B, or that you're planning green improvements like replacing your gas boiler with an air source heat pump. If you satisfy these requirements, you could be eligible for lower interest rates, cashback, or even reduced rates on additional borrowing.
Green buy-to-let mortgages
Green buy-to-let mortgages are specifically designed for landlords who want to purchase or refinance properties with strong environmental credentials. These mortgages will offer financial incentives to encourage this investment, typically in the form of lower interest rates.
Both green remortgages and green buy-to-let mortgages incentivise property owners and landlords to invest in energy-efficient properties or make improvements to existing ones - this in turn, contributes towards lower carbon emissions and potentially could also mean lower energy bills for occupants.
Steps to make your home more energy efficient.
Here’s some handy hints and tips on how you could stop wasting energy and money by improving your home’s energy efficiency - whilst reducing your carbon footprint.
Home improvements for sustainability.
Upgrade to a heat pump. Air source heat pumps (ASHPs) are a cleaner, more efficient alternative to gas boilers. They take warmth from the outside air and use it to heat your home and give you hot water. ASHPs are typically 3 to 4 times more efficient than older heating systems so can reduce your heating costs as well as your carbon footprint.¹
Go solar. Solar is a great source of renewable energy for your home and it’s one of the fastest growing renewable energy solutions. As well as making your home more energy efficient, solar can help save you money too. Typically a 12-panel solar system, and a 5.1 kWh (5.1 kWh usable) battery could save you up to £1,269 a year.2
Get double glazing. Double glazing your windows helps retain heat and prevent cold air from entering your home. It’s a great way to improve energy efficiency and can reduce outside noise too.
Use energy-efficient appliances. Upgrading to energy-efficient appliances not only help you improve the energy rating of your home but can also help save you money.
Get home insulation. Insulating your floors, walls, ceilings, and loft can help massively with improving energy efficiency in your home. It also reduces the need for heating and can reduce your energy bills. It’s always worth checking if you qualify for the Great British Insulation Scheme (GBIS). This is a scheme designed exclusively for those who want to add or upgrade their property with free or discounted installation.
Accessing 0% green additional borrowing.
Currently, in the UK, we’re seeing the potential emergence of 0% green borrowing. This is being pioneered by the Nationwide Building Society who are offering their existing customers a 0% interest rate to fund energy-efficient home improvements.3
This can be for things like solar panels, air source heat pumps, insulation, and boiler upgrades. It’s an exciting initiative, designed to encourage homeowners to make their homes more energy-efficient and help contribute towards the UK's net-zero goals.
Better still, if the Nationwide's initiative proves successful and demand increases, other lenders may follow suit and introduce similar products - this in turn, could create competition and potentially lead to even better deals for borrowers.
A greener borrowing future.
The emergence of initiatives like green mortgages and green borrowing are key in helping us move towards a more sustainable future. By encouraging energy-efficient homes and renovations, they’re empowering us to not only reduce our carbon footprint but get potential savings through lower energy bills and increased property values.
It’s a win-win. And the best part? As awareness grows and more lenders offer green options, we can expect to see a big increase in eco-friendly homes, meaning a brighter and more sustainable future for all.
Your FAQs about green mortgages.
Why are banks offering green mortgages?
Banks offer green mortgages for a number of reasons. Firstly, there's growing demand from customers who want to be more environmentally conscious and save on energy costs.
Secondly, green mortgages can be less risky for banks. Borrowers tend to default less and the properties hold their value better. And finally, offering green mortgages helps banks meet government targets, improve their reputation, and attract investors who value sustainability.
How do green mortgages contribute to sustainability?
Green mortgages contribute to sustainability by incentivising both homeowners and builders to prioritise energy efficiency.
For homeowners, they offer lower interest rates or cashback for buying energy-efficient homes or making green improvements. This encourages the purchase and renovation of properties with features like better insulation, solar panels, and heat pumps, which reduce carbon emissions and reliance on fossil fuels.
For builders, the increased demand for these features encourages the construction of new homes that are more sustainable from the outset. Ultimately, green mortgages help drive a shift towards a more eco-friendly housing market.