What is a ‘green’ mortgage?

These days it seems everything is going green, with eco-friendly beauty products and home accessories just two of the markets that have received a sustainable makeover in recent years. The property sector is also embracing all things green, with savvy buyers always on the lookout for residential and commercial premises that have greater eco potential and energy-efficient credentials during their property searches.

The introduction of the ‘green’ mortgage has been greeted with applause by these eco-conscious home buyers. But is a green mortgage right for you?

What exactly is a green mortgage?

Green mortgages are one of the latest mortgage types to hit the market, with the first green mortgages for residential dwellings launched in 2018.  

With properties built or sold already having to provide an up-to-date Energy Performance Certificate (EPC) by law for prospective purchasers to view, green mortgages promise rewards for financed homes based on their rated energy efficiency.

What rewards can I expect with a green mortgage?

Rewards come in the shape of cashback offers and rate discounts, with some green mortgage deals promising cashback up to £999 and discounts of up to 0.16% depending on the loan-to-value and fixed-term duration. The incentives of green mortgages can provide the funds and savings home buyers need to move into their new properties affordably.

Other lenders provide cashback for prospective home improvements as Which? explains:

“Nationwide is the biggest lender offering this type of deal. It’s ‘Green Additional Borrowing’ product allows homeowners to apply for an additional £5,000 to £25,000 to make green home improvements at a reduced rate of 0.75%. This deal is available at up to 85% loan-to-value.”

This green mortgage deal and similar may provide cashback but works to improve the eco-friendliness of qualifying properties must be completed within a specific time period. This is usually within one year of taking out the mortgage product.

Does my property qualify for a green mortgage?

The introduction of the green mortgage has no doubt changed the property buying process for the better. It is however only available to qualifying properties that meet very specific criteria. Most green mortgages require properties to have an EPC rating of B or above.

All properties (including new builds) could qualify with the right EPC rating. Even those buying off-plan are able to secure a green mortgage deal by providing the Predicted Energy Assessment (PEA) of the new build property. PEAs are available before building work has been completed.

Are there any drawbacks to green mortgages?

There are some instances where a green mortgage could be costlier than a standard mortgage product. Properties in a higher loan-to-value bracket, say 90%, will find green mortgages more expensive, especially if the deal is fixed for just two years. Fixing for longer (i.e. for a five-year term) could also make a green mortgage the pricier option.

Whether you’re looking for a green mortgage or another product, seeking independent advice from our experts is the key to securing the best deal for you. Contact our local advisors today to discuss your requirements.