Green Mortgages

What is a green mortgage?

Some lenders offer rewards if you decide to buy an energy-efficient home or make improvements to your current home that increase its energy efficiency. These rewards might be in the form of cashback, for example, or a better interest rate than a standard mortgage. Landlords can also benefit from green buy-to-let mortgages when buying energy-efficient investment properties or making green improvements to their existing rental properties.

The idea behind green mortgages and their incentives is to make energy-efficient properties more desirable. Whilst the environment benefits from lower carbon emissions, you get a cheaper mortgage deal as well as lower energy bills. You no doubt already try to save energy where you can in your home. For example, having showers instead of baths and turning the light off when you leave a room. A green mortgage simply allows you to go a step further with your energy efficiency and be rewarded for your endeavours.

Lenders have different criteria and incentives for green mortgages. For example, some offer cashback or lower interest rates when improvements are made to the property’s energy efficiency. Others offer larger loans with cashback or lower rates if a minimum level of energy efficiency is met. Usually, a rating of A or B on the Energy Performance Certificate is expected.

When buying a property, green mortgages apply to new builds that meet specific criteria as well as older properties that have been upgraded to the necessary energy-efficient levels. As mentioned above, they’re also available to homeowners and landlords who wish to meet higher energy efficiency standards.

What is an Energy Performance Certificate?

An Energy Performance Certificate (EPC) denotes the energy efficiency of a property. Ratings range from the highest level of A to the lowest level of G. Any property that’s built, rented out or sold in the UK must have an EPC. If the home you wish to buy is still being built, you can obtain a Predicted Energy Assessment (PEA) from the builder or developer. The lender will need to see this before approving a green mortgage.

Each EPC is valid for 10 years and all of its information is logged on the EPC register. This register applies to properties in England, Wales and Northern Ireland. For properties in Scotland, there is a separate register.

How do you qualify for a green mortgage?

There are usually two ways to qualify for a green mortgage. One is to buy a property with a high energy efficiency rating. The other is to improve the energy efficiency of your current home or rental property if you’re a landlord.

• Buying a property with a high energy efficiency rating. This could be a new-build home in Pimlico, for example, that you’re buying straight from the developer. Or a newly built property in Bexleyheath that you want for buy-to-let purposes. Alternatively, it could be an older property where the previous owner has carried out significant green improvements. Generally, the energy efficiency rating for the property needs to be A or B to qualify for a green mortgage.
• Making green improvements to your home. If you’re borrowing to carry out improvements to the energy efficiency of your home in Bexley, you can apply for a green mortgage. Examples of green home improvements include fitting solar panels, replacing the windows with double glazing and improving the loft insulation. This also applies if you’re a landlord and wish to make energy-efficient improvements to your rental property.

Improving your home’s energy efficiency

There are various ways to improve the energy efficiency of your property. These include:

• Insulating your property. Check the loft, cavity wall and roof insulation in your property. Improve it where you can as this prevents heat loss, reducing the amount that your home has to be heated.
• Installing double glazing. Another way to prevent heat loss is to replace any single-glazed windows with double glazing. The less you need to heat your home, the more energy efficient your property is and the more savings you make on your energy bills.
• Fitting composite doors. Composite doors resemble wooden doors but have a premium design. They are made from modern materials that provide excellent thermal efficiency.
• Installing solar panels. Solar panels allow you to generate renewable energy. There are no emissions, meaning that you considerably reduce your carbon footprint.
• Upgrading your boiler. Modern boilers are designed to be more energy efficient, using less gas when it comes to providing hot water and heating. They produce lower emissions and can be designed with better insulation materials, more precise temperature controls and smart technology, among other energy-efficient benefits.
• Installing a ground or air source heat pump. These renewable energy devices absorb natural warmth from the ground or air, respectively. They generally have a 300% efficiency rating compared with gas boilers.

Why is there a need for green mortgages?

Greener properties have a significant positive impact on the environment. Currently, almost a third of the UK’s carbon emissions are derived solely from the heating of homes and workplaces. To tackle climate change, the government has implemented a Net Zero Strategy. By 2050, this strategy aims to have reduced the UK’s domestic contribution to man-made climate change by 100%.

One way to help achieve this goal is by making properties more energy efficient. With this in mind, property buyers, homeowners and landlords are motivated to implement more energy-efficient solutions. This motivation is in the form of financial incentives offered by lenders via green mortgages and remortgages. These are provided to those who either buy an energy-efficient property or make green improvements to their existing home or investment property.

How do lenders benefit from offering green mortgages?

As the energy efficiency of properties is a big factor in reaching the net zero goal by 2050, the government expects mortgage lenders to divulge the energy performance across their portfolios. It has set targets that it would like lenders to meet by 2030 for the average EPC rating across their mortgage portfolios. To achieve these targets, the government wants an increase in the number of green mortgages offered. The Financial Conduct Authority (FCA) supports this move and is encouraging lenders to deliver on their decarbonisation targets.

To carry out their role towards achieving the net zero goal, therefore, some lenders already offer green mortgages to more energy-efficient borrowers. Competitive deals with financial incentives are provided as a way to persuade more borrowers to consider energy-efficient properties. As all mortgage lenders are expected to meet improvement targets, the availability of green mortgages should increase accordingly. As they do, it’s hoped that even better incentives will be offered to encourage a higher uptake of green loans.

Less risk for lenders

Aside from helping to combat climate change, offering green mortgages is also considered to be less risky for lenders. By having an energy-efficient property, a borrower saves on their energy bills. At a time when the cost of living is so high, many borrowers are struggling to keep up with their mortgage repayments. Being able to save on their energy bills, however, means that they’ll be more likely to afford their mortgage repayments. The lower risk for lenders allows them to offer lower interest rates or cashback as an incentive to take out a green mortgage.

Greener properties hold their value

As combatting climate change is such as priority, purchasing a green property is considered to be more appealing and less risky. As such, green properties are likely to retain their value even if the property market should dip. This also lowers the risk for lenders, enabling them to offer lower rates or cashback as an incentive to borrowers.

How can brokers help with green mortgages?

The FCA acknowledges the importance of brokers in matching borrowers who want to utilise a green loan for an energy-efficient property with lenders offering green mortgages and remortgages. Not all lenders offer green mortgages and those that do have different requirements for their energy efficiency criteria. For example, some require a certain EPC rating and others require specific improvements to be made to a property’s energy efficiency. Mortgage brokers can help to navigate this complex process, saving you time, stress and potentially a lot of money.

Get expert, impartial advice on green home finance

As independent brokers, we have access to the entire market at Trinity Finance. Our mortgage brokers know which lenders offer green mortgages and can compare the deals for you. They will also compare the green mortgage deals with standard mortgages so that you can weigh up the differences in rates, incentives, terms and fees. Your circumstances are different from everyone else’s so it’s important to make the right decision based on the overall deal, not just whether it’s considered to be green or not.

To discuss your mortgage needs and discover the best options available, give us a call on 01322 907 000. Our mortgage brokers – located throughout Kent, London and Edinburgh – will provide you with impartial advice so that you can make an informed decision about applying for a green mortgage or remortgage. If you prefer, email us at info@trinityfinance.co.uk or send an enquiry via our contact form. We’ll reply to you as quickly as possible with more information about green home finance.

What savings can you make with a green mortgage?

As well as saving money on your energy bills by having an energy-efficient property, savings are offered with green mortgages. These are provided in the form of lower interest rates and/or cashback, depending on the deal.

When comparing green mortgages and standard mortgages with the same lender, you should benefit from a better rate when choosing a green option. For example, reduced rates may be offered on the lender’s 2-year or 5-year fixed-rate deals for green mortgages and remortgages. However, when you compare a green mortgage deal with standard deals across the market, it’s likely that a better rate will be offered for a standard mortgage. As more lenders begin to offer green mortgages and they increase in popularity with borrowers, the rates will become more competitive. Then, when green mortgages are more mainstream, you can look forward to making bigger savings.  

Our mortgage brokers can compare the rates for you across different green mortgages as well as standard mortgages. That way, you’ll know exactly how much you can save if you decide to go ahead with a green mortgage.

The advantages of having a green mortgage

There are various benefits to consider when you’re thinking about having a green mortgage, as detailed below.

A lower interest rate

When buying an energy-efficient property that meets a lender’s criteria, they’ll offer you a better rate than a standard mortgage. This requirement tends to be an A or B rating on the EPC. If you already own a property and wish to improve its energy efficiency, you can also benefit from reduced rates. 

Cashback

Some lenders offer a cashback incentive with a green mortgage to buy an energy-efficient property. As with the incentive of a lower interest rate, a high EPC rating of A or B is usually required to qualify. For your existing property that you wish to make green home improvements on, cashback may also be available for you.

Other incentives for making green home improvements

As well as benefitting from a lower interest rate or cashback if you wish to make your existing property more energy efficient, some lenders offer other incentives. For example, an interest-free loan specifically to cover green home improvements on a 2 or 5-year fixed deal. Or a financial reward for existing borrowers who carry out green home improvements, without the need to borrow more to qualify.

Approval for a larger loan

Another way that some lenders encourage borrowers to buy energy-efficient properties is by approving larger loans.

Flexible payments

Some lenders allow you to make overpayments without being penalised by an early repayment charge. Or you may be able to take payment holidays if you meet the criteria.

An increase in your property’s value

Properties with high EPC ratings, such as A or B, tend to be valued higher than those with lower ratings. When buying a green property, it’s likely to retain its value as it’s considered to be more appealing. When upgrading your property to make it more energy efficient, you can actually increase its value.

Cheaper energy bills

The more energy efficient your home is, the cheaper your energy bills will be. So as well as gaining from the financial incentives offered with a green mortgage or remortgage, you’ll save money on your energy bills every month.

A reduced environmental impact

To qualify for a green mortgage or remortgage, you need to meet specific criteria for energy efficiency. By doing so, your property will have a lower impact on the environment. This is an effective way to reduce your carbon footprint and a good contribution towards the UK’s net zero target.

Lenders make green contributions

As well as offering you a financial incentive for taking out a green mortgage, some lenders go a step further. They make contributions to green campaigns each time a borrower agrees to a green mortgage. For example, by planting trees or funding clean energy projects to help reduce carbon emissions.

The disadvantages of having a green mortgage

As with any type of mortgage, there are disadvantages to consider too.

The availability is fairly limited

Whilst green mortgages and remortgages are offered by lenders, they’re not as common as other types of mortgages. This limits your choice when you’re hoping to secure green home finance.

Non-green mortgages are available with lower rates

Although a green mortgage is likely to have a lower rate than a standard mortgage via the same lender, non-green mortgages via other lenders are likely to have lower interest rates.

Green home improvements can be costly

It can be expensive to make the improvements needed to qualify for a green mortgage or remortgage.

The mortgage may not be as green as you think

Whilst the aim behind a green mortgage is to support increased energy efficiency in properties, this may be as far as its greenness goes. Lenders offering green mortgages may also invest in industries that do considerable damage to the environment.

How do you apply for a green mortgage?

You apply for a green mortgage in the same way as you would for a standard mortgage. You’ll need to pay a deposit and pass the lender’s affordability checks. Our mortgage brokers will advise you of the specific criteria to be met for a green mortgage with that lender. You’ll then either need to provide a copy of the EPC showing an A or B rating or a Predicted Energy Assessment (PEA) if the property is still being built.

Your dedicated mortgage broker will prepare the mortgage application on your behalf and oversee the process from start to finish. This will ensure that it runs smoothly and any queries can be dealt with quickly.

What’s the difference between a green mortgage and an eco mortgage?

The terms ‘eco mortgage’ and ‘green mortgage’ are often used interchangeably. However, eco mortgages tend to be a lot more in depth when it comes to their criteria. The requirements usually state that the property must be built using construction methods that are environmentally friendly. As well as that, only sustainable materials must be used in its construction. As such, this type of property is considered to be non-standard and securing a mortgage can be more challenging. If you require green home finance for a property of this nature then, rather than approaching lenders that offer green mortgages, our mortgage brokers will search for eco mortgages, which are specialist products offered by some lenders.   

We can arrange your green home finance

If you want to reduce your carbon footprint and are ready to buy an energy-efficient property or make green improvements to your existing one, just give us a call on 01322 907 000. Our mortgage brokers – located throughout Kent, London and Edinburgh – are ready to help you. They’ll check different lenders’ criteria to qualify for a green mortgage as well as the incentives and terms offered. These deals will be compared with non-green mortgage deals to give you a wider choice of mortgage products.

At Trinity Finance, we’re not tied to specific lenders, which means that we can search the entire market for you. This includes exclusive broker-only deals. You’ll hear about the latest deals available and benefit from a thorough comparison of green and non-green mortgage products. That way, you can be certain of making the best financial decision to meet your needs. If you’re not available to speak with a mortgage broker by phone, send an email to us at info@trinityfinance.co.uk. Alternatively, submit an enquiry to us via our contact form. One of our mortgage consultants will reply to you as quickly as possible with further details on green home finance.