- Green mortgages are a type of mortgage that offers favourable terms for those buying energy-efficient homes.
- These favourable terms can include cashback on green mortgages or lower interest rates.
- Those looking to qualify will usually need an EPC (Energy Performance Certificate) at A or B.
Recently, the UK population becoming increasingly eco-conscious has allowed ‘green mortgages’ to find their place in the mainstream market. They offer borrowers preferential rates directly linked to the energy performance of their properties. As a result, it gives home buyers and investors an extra impetus to look at newer, more eco-friendly properties to keep costs down.
What Are Green Mortgage Products?
The fact that many of us aren’t aware of what these product options are is one of its most significant struggles. The sector offers better-rate mortgages for properties with eco-friendly energy performances. Therefore, in practice, if you are choosing to buy an energy-efficient property, your mortgage rates will be better!
Research from Intermediary Mortgage Lenders Association (IMLA)found that 43% of borrowers hadn’t heard of Green Mortgages. More than a third of borrowers also wrongly believed green mortgages would cost more. The statistics show that around 77% of eco-aware lenders offer green products that are equal to or cheaper than a standard mortgage. Currently, only a relatively small number of lenders provide green mortgages, but the survey saw 29% planning to introduce such a product. A further 35% of agents also plan to advise buyers on green mortgages in future.
Why Are ‘Green Mortgages’ Becoming Popular?
As of yet, there are only a few lenders in the UK offering better-than-normal rates on eco-friendly properties. However, a growing trend for eco-friendly products across sectors has provided an added incentive for investors. When focussing on eco-trends, it is evident that this is a growing one, with more people becoming dedicated to doing their part against the devastating effects of climate change. This entices more buyers to steer towards eco-friendly products and properties. There are plenty of indicators that eco-friendly mortgage products will improve in number. Lenders and advisers alike are beginning to recognise the potential of green mortgages and advise buyers accordingly.
The effects of the Covid-19 lockdown may have spurred this by providing a glimpse of a world with reduced carbon emissions. As a result, the growth of green finance is sure to continue to accelerate. The IMLA also reported that 74% of lenders think green mortgages will be more significant in the finance sector in future, and increased interest has already been noted since the pandemic outbreak.
The reasons for this growth in popularity are vast and varied, but most regard either the environmental or financial factors. Some buyers wish to improve their carbon footprint by living in a more environmentally friendly property. However, cost savings entice more than half (53%) of consumers.
What Are the Eligibility Criteria for a Green Mortgage?
While each lender will have their own set of eligibility criteria for green mortgages, some common requirements include:
- Need to meet a certain level of energy efficiency
- Will need an EPC (Energy Performance Certificate) at A or B
- The property is a new build
Your eligibility for a green mortgage, as with any other type of mortgage, will be dependent upon a range of different factors, and can be greatly influenced by your current circumstances and financial situation. For example, if you have an adverse credit history, or an unstable income the lender may be more hesitant to approve the mortgage.
If you’re unsure about your eligibility for a green mortgage, or a mortgage altogether, it might help to discuss your options with a mortgage broker. Mortgage brokers can help advise you on the options that’ll work best for you, basing this off of your current circumstances and other details you provide them with.
What Issues Does The Green Market Face?
Eco-friendly properties face the problem of cost when going green. 27% of property owners agree that affordability is an issue for them. Many investors do not find it worth the price of improving energy efficiency. To combat this, the Government has created The Green Homes Grant which could act as a great incentive. Green mortgages work as a great alternative option for customers, but there are considerable barriers which still stand in the way towards growing the green finance sector.
The Government has committed to making Britain carbon-neutral by 2050 and, to do so, the existing housing stock will have to make changes to create more energy-efficient homes.
