The term ‘green mortgage’ can relate to a number of different types of mortgage deals, the common theme being that they all offer an incentive to own a more energy efficient home.
Incentives range by lender and property type, but include more competitive interest rates and additional borrowing. There are now a growing number of lenders offering green mortgages to the eco-conscious consumer.
Each mortgage lender and product has its own criteria - but the green eligibility focuses on the energy efficiency (or potential future energy efficiency) of your property.
Some lenders look at the EPC (Energy Performance Certificate) band, and most will be looking for properties to fall into categories A or B. Others tend to use the numerical value associated with the EPC rating of your property, in this they usually want a rating of 80+.
If you’re looking for a green mortgage to borrow the cost of improving the energy efficiency of your existing home, you'll need to show how the improvements will help you achieve an A, B or 80+ EPC rating.
The exact benefits of each green mortgage vary depending on the lender and product, but typically include:
Better mortgage interest rates - Many lenders offer a 'green mortgage rate' if your property meets their definition of green.
Cashback on your mortgage - Some lenders offer cashback on completion of your mortgage or remortgage, rather than better interest rates
A loan for green home improvements - Some lenders provide additional funds on top of your mortgage to carry out green home improvements. This could be replacing single-glazed windows or installation of solar panels
Future proofing the value of your home - Green mortgages are expected to become more prominent in the future, as the world continues to strive for more sustainable ways to live. Lenders are looking at green homes as a less risky investment - ‘green value’ properties are more likely to hold their value in the future - especially useful for landlords who will need to meet stricter EPC ratings in the future
Lower cost of living due to cheaper energy bills - A more energy efficient home is cheaper to run. Proper insulation and modern, well-maintained heat and energy supplies minimise the cost of utility bills in the long term
An EPC (Energy Performance Certificate) is needed for all residential properties that are built, sold or rented. An assessment is carried out to establish energy efficiency on a scale from most to least efficient using either A to G and/or 100 to zero.
EPC ratings lasts for 10 years, but you can apply for a new assessment if you have renovations carried out to improve the rating. If you are purchasing a new build home that is not yet complete, a PEA (Predicted Energy Assessment) should be available for it.
Green mortgages are slightly more common with building societies than high street lenders, although popularity is rising with the big six lenders. Barclays’ green home mortgage products are only available on new build properties with an EPC rating of A or B or above 81. NatWest green mortgages, however, are available for mortgages and remortgages on any EPC A or B level properties. Both lenders offer this product for residential and buy-to-let mortgages.
Nationwide offer a cashback option for properties already rated A or B, and a ‘green borrowing’ option to improve the energy efficiency of a lower rated home. Ecology Building Society are a specialist finance company for those looking to carry out special projects, such as the construction of innovative self-build homes with a focus on sustainability.
In theory, green mortgages should be cheaper than conventional options, as lenders tend to reserve their most competitive rates for this purpose, meaning that the green mortgage should work out to be the cheapest option that each lender offers.
In reality, however, there are lenders not necessarily offering green mortgages, who have lower typical rates than those offered by green mortgage providers. As rates have risen quite sharply across the entire industry in recent months, this means that, unfortunately, green mortgages won’t always be your cheapest option in the short term.
It could be argued, however, that as a longer-term investment, buying an energy efficient home now will help you retain its value and potentially achieve lower remortgage rates in the future. If you’re looking at the wider picture, the savings you make on energy may also outweigh any additional costs on interest, especially if they are negligible, so it’s certainly worth exploring this further, if ethical consumerism is your major focus.
At the current time, green mortgages are unfortunately not going to be the cheapest option for every buyer, however, there are still two types of mortgage applicant that would likely benefit from choosing a green mortgage:
Mortgage prisoners - If you want to switch mortgages to get a better interest rate, but don't have enough equity or have had a decline in financial circumstances, you could potentially benefit from a green mortgage with your existing lender. If your lender offers green mortgages and your home meets the minimum energy efficiency rating rating, then this may well be your cheapest option.
Buy to Let landlords - Legislation that was due to go into effect in 2025 requiring all tenancies to offer accommodation with an EPC rating of C or above has now been scrapped by the government. Nevertheless, tenants are increasingly seeing good EPC ratings as an important factor when considering rental property.
Last updated: 05 September 2023