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A green mortgage, or eco mortgage as they are sometimes also called, can offer homeowners the chance to save money while also helping the environment.
Read on to find out more about how green mortgages work, whether they are worth considering, and the importance of your home’s Energy Performance Certificate.
What is a green mortgage?
Green mortgages reward owners of properties that meet certain energy efficiency standards with lower interest rates or cashback. These standards are usually judged using your home’s Energy Performance Certificate (EPC) rating. One of the top EPC ratings of A or B is usually needed to qualify for a green.
You may be able to get a green mortgage when you buy a home that a lender considers to be environmentally friendly, or by making improvements to your current property to make it greener.
An Energy Performance Certificate is a document that scores the energy efficiency of a property. It also details how a property’s rating can be improved. EPC ratings range from A, the highest available, to G, the worst, and expire after 10 years.
If you live in England, Wales or Northern Ireland, you should be able to find your EPC using the Gov.uk website. There is a separate EPC register for properties in Scotland.
How do green mortgages work?
A green mortgage works in the same way as a standard mortgage – you make monthly repayments and pay interest on what you’ve borrowed. The big difference is that you can expect some kind of reward for having an energy efficient home.
Usually, this involves the offer of a better mortgage rate or a monetary incentive in the form of cashback.
One important point to note is that there’s unlikely to be anything specifically ‘green’ about the mortgage itself. The positive environmental impact comes from your home using less energy, rather than anything to do with the lender supporting green initiatives generally or investing or raising funds ethically.
Are green mortgages cheaper?
You can expect a green mortgage to have a lower interest rate than a similar standard mortgage from the same lender. Crucially, however, you may still be able to get a better interest rate on a standard mortgage from a different lender. Shopping around and comparing mortgage deals across the market is key.
» MORE: See current mortgage rates
How do you qualify for a green mortgage?
If you buy a home or remortgage, the property will usually need an EPC rating of A or B to be eligible for a green mortgage. Some lenders may set a minimum energy rating score instead – this is also found on an EPC, with a score of 81-91 equating to a rating of B, and a score of 92 or over being an A.
You may qualify for more cashback or an even better rate with a higher score. However, eligibility criteria will vary, so always check if your home qualifies with a lender. For example, some providers will only offer green mortgages to those buying new-build homes.
If you already own the property and want to remortgage to a green mortgage, it may be that your home already has a high enough energy rating. If it doesn’t, there may be home improvements you can carry out which would push the property to the necessary EPC rating.
As well as meeting the requirements specific to a green mortgage, you’ll also need to pass the wider eligibility criteria for a mortgage and prove that it is affordable. Lenders will therefore want to evaluate your wider financial situation in respect of your income, outgoings, debt, and so on, and also check your credit score.
» MORE: Learn about mortgage eligibility
Green mortgage pros and cons
The benefits of a green mortgage are perhaps more easily seen than the potential drawbacks, but it’s important to consider both.
Advantages of a green mortgage
- You know your property is helping to reduce your carbon footprint.
- You may qualify for a lower interest rate or cashback.
- A home that qualifies for a green mortgage might hold its value better than others.
Disadvantages of green mortgages
- There may be non-green mortgages available with different lenders offering lower rates.
- The number of green mortgages available is relatively small.
- Renovations and improvements required to make your home eligible for a green mortgage might be expensive.
How do I apply for a green mortgage?
Finding a green mortgage will not be significantly different to finding a standard mortgage. Once you know if you are eligible for a provider’s green mortgage, you can apply for a mortgage in principle with that lender.
Documents you need will vary from lender to lender, but you will generally have to provide proof of ID, such as a current passport or full UK photocard driving licence; proof of earnings, such as bank statements and payslips; evidence of your mortgage deposit; and utility or council tax bills as proof of address.
You can also expect to be asked to prove your home’s energy efficiency by supplying a valid EPC with an A or B rating, or a predicted energy assessment if your home is yet to be built.
Sellers are required to provide an EPC when they market their property in England, Wales and Northern Ireland, and to have it on display in properties for sale in Scotland.
Who offers green mortgages?
At the time of writing, there are several banks and building societies that currently offer green mortgages, including Barclays, Halifax, Lloyds, NatWest, Nationwide, Virgin Money. However, not every lender offers a green mortgage option, and they certainly aren’t as widely available as standard mortgages.
» MORE: Best mortgage lenders
Why should I get a green mortgage?
A green mortgage is effectively an incentive to improve the energy efficiency of your home or buy a more energy efficient home. This is good news from an environmental perspective, and may also cut the cost of your energy bills.
By making your home greener, or buying a green home, you’re also incentivising your lender to offer you preferential terms. That is mainly because your home will be cheaper to run than a less energy-efficient home, making your monthly repayments more affordable.
In this way, green mortgages can make borrowing cheaper and lending more secure. Homes with a good EPC rating are also more valuable because prospective buyers will appreciate the energy savings they offer. They are also considered to hold their value more effectively during times of economic uncertainty.
How can I improve the energy efficiency of my home?
Some of the ways you could save energy at home might include insulating your loft, walls and floor, and upgrading to double or triple-glazed windows, to slow the escape of heat. Other steps could include replacing an older boiler and installing solar panels.
Some of these measures won’t be cheap, so it’s important to work out what you can afford. But in the long run, each has the potential to save you money, while also helping save the environment.
» MORE: Remortgaging to pay for home improvements
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