Currently, there are very few green mortgages in the market, but this may soon be about to change.
A recent survey by the Intermediary Mortgage Lenders Association found three in ten (29%) lenders plan to launch, or have already launched, a green mortgage product. More than a third of brokers (35%) said they intend to advise clients on green mortgages in the future.
Lots of people assume green mortgages cost more than traditional mortgages. In fact, 77% of lenders said they have, or plan to launch, green mortgages that are either cheaper or the same price as standard mortgages.
But what exactly is a green mortgage? And should you consider taking one out?
A green mortgage is a special type of mortgage that gives you a discounted interest rate if you own an energy-efficient home or are making your current home more eco-friendly.
Barclays launched the UK’s first green mortgage in 2018, but the main catalyst for the market was the launch of the government’s Green Finance Strategy in 2019. The government created a £5 million fund to help the financial sector develop green home finance products, including green mortgages.
Nationwide followed suit by releasing its own green mortgage in early 2020. There are also some niche lenders who offer green mortgages.
It is thought the coronavirus pandemic could result in more lenders launching these eco-friendly products.
"Now, with a Covid-19 lockdown giving us all a temporary view of a world with reduced carbon emissions, the growth of the green mortgage market could accelerate yet further," says Kate Davies, Executive Director at the Intermediary Mortgage Lenders Association.
To qualify for a green mortgage, you need to live in an energy-efficient home or commit to increasing your existing home’s energy efficiency rating. Each lender has slightly different criteria, so you need to understand the termsand conditions before applying.
Barclays’ Green Home Mortgage is only available to people who are buying an energy-efficient new-build property from one of its partner housebuilders. If the property has an energy efficiency rating of 81 or above, or is in energyefficiency bands A or B, you could get lower rates on certain fixed-rate mortgages.
Nationwide’s Green Additional Borrowing mortgage lets you borrow between £5,000 and £25,000 to improve your home’s energy efficiency. This could involve installing wall insulation, air source heat pumps, ordouble glazing. If you use at least 50% of your extra borrowing on energy efficiency home improvements, you could qualify for a discounted initial interest rate.
Lower mortgage repayments are the most obvious attraction of green mortgages. Barclays has claimed that home movers buying a new-build property could save up to £375 on a mortgage of £150,000 over a five-year fixed-rate term.
Green mortgages have other benefits too, including lower energy bills. According to the Energy Saving Trust, a typical semi-detached home could reduce their heating bill by around £330 a year by installing solid wall insulation and A++ rated double glazing.
Some researchers have found that owners of energy-efficient homes are less likely to default on their mortgage repayments. A Bank of England analysis of 1.8 million outstanding mortgages at the end of 2017 found 0.93% of energy-efficient properties were in mortgage arrears, versus 1.14% of energy inefficient properties.
The reasoning is that because energy-efficient households have lower bills, they have more disposable income and so are less likely to miss repayments.
There’s also the non-financial benefit of helping the environment by reducing your home’s carbon emissions.
The green mortgage market is still small, with only two major lenders getting in on the action. You might prefer to wait until more lenders enter the market to increase your chances of getting a product that meets your needs.
Barclays’ product is only available if you’re buying a new-build property. Most new homes are built in cities and large towns, so this might not be a possibility if you’re a countryside dweller. In addition, new homestend to come with a few niggles and are usually more expensive than older homes.
Nationwide's product might be an option if you're upgrading your existing home's energy efficiency, however, there's a limit to how much you can borrow, which might be insufficient for extremely old properties.
Remember, some niche lenders offer green mortgages too. A mortgage broker can identify which green mortgages are available and advise whether they're right for you.
If you want to find out whether you qualify for a green mortgage, or simply want further information, please get in touch. Request a callback or call us on 03300 583 859.