How to turn your mortgage green
Environmentally-conscious people can turn their investments and savings green and now they can turn their mortgage green too, with a surge in eco-friendly mortgages being launched.
The number of ‘green’ mortgages on the market has increased five-fold so far this year, according to data from mortgage broker Property Master – there were 78 on offer in April this year and there are now 400.
The logic behind these mortgages is that the cost of running a more energy-efficient house is lower, meaning that you’re more able to afford your mortgage or can afford higher mortgage payments.
As a result, mortgage providers are either rewarding customers with energy efficient homes by giving them better rates or cashback, or are giving incentives to improve their home’s energy efficiency.
A large report carried out in 2015, called the Lenders project, looked at whether the cost of energy bills should be taken into account for mortgage affordability calculations and found that lenders could offer up to £12,000 of additional borrowing to people who bought energy-efficient homes with lower bills, compared to less efficient homes.
Lenders have taken two different approaches. The first is those who offer slightly better rates for people who buy a new-build property that’s more energy efficient. This typically means homes that have an A or B rating on the Energy Performance Certificate, which rates the energy efficiency of your home from A through to G.
Barclays and Virgin Money have both taken this approach, offering a better rate for new-build buyers. For example, Virgin Money offers a green mortgage for new-build buyers where the energy rating is A or B and so long as you have a 15% deposit. Its standard two-year fix is 1.79% while its ‘Greener’ two-year fix is 1.74%, which on a £400,000 mortgage over 25 years saves you around £10 a month.
What’s more, the Greener mortgage comes with five tonnes of carbon offsetting, with Virgin putting funding into clean energy projects.
David Hollingworth, at broker L&C Mortgages, says Natwest takes a slightly different approach and offers £500 cashback on the mortgage for an energy-efficient home and also offers better rates on additional borrowing where the intention is to improve the home’s energy efficiency – for example putting in replacement windows.
This applies to existing homes and new builds, you just need an A or B rated property.
WHAT ABOUT EXISTING HOMEOWNERS?
Those who own older, less efficient properties aren’t shut out from the green mortgage market, with some providers giving incentives to make homes more eco-friendly. Examples of work include improving the insulation in a home or introducing solar panels or a new heating system.
Kensington Building Society has one such option, with its eKo mortgage range. It offers cashback to homeowners if they improve a property’s efficiency in the year after taking out the mortgage.
It bases the improvement on the EPC and says the score must improve by 10 points (as a guide, the G energy rating band runs from 1 to 20 points, while the C band is 69 to 80 points). The clincher here is either carrying out work that costs around or less than £1,000, or carrying out work you planned to do anyway – although you should save on energy bills either way.
Saffron Building Society offers a similar scheme but instead of cashback it will discount the mortgage rate, after work has been carried out and a new EPC provided.
Hollingworth adds: ‘Although these deals will require a new EPC to be commissioned it is a good step toward thinking about how to improve the range of options for borrowers keen to improve their homes, especially as many of the bigger improvements can come with relatively big initial outlay.
‘The increase in availability in green mortgages is encouraging as it will be important that homeowners can access attractive financing options if real changes can be made to our homes.’
GOING EVEN FURTHER
One lender is looking to take the green mortgages one step further and automatically lend more to those who buy more energy-efficient homes.
Monmouthshire Building Society is looking to factor the home’s EPC into its affordability calculator. Typically these have looked at income, earnings and outgoings to assess how much people can borrow, but have not taken into account the financial benefit of moving to a more energy-efficient home, which will have lower running costs.
The move would mean those buying homes rated A or B would potentially be able to borrow up to £12,000 more. Monmouthshire is trialling the scheme on two new-build projects in Wales at the moment, but could roll it out to all customers in the future.