A green mortgage is a special kind of mortgage which offers rewards to those purchasing energy efficient properties, or who make energy efficient improvements to their homes.
These rewards usually take the form of financial incentives, such as cashback, or lower mortgage rates.
In the six months to April 2022, the number of green mortgages on the market increased by a factor of 18% from 550 to 648, with particularly strong growth in the buy to let sector, according to Defaqto.
In this article, we’ll explain the ins and outs of green mortgages and list some ways to boost the Energy Performance Certificate (EPC) rating of your property if you’re interested in applying for one.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
What are the benefits of a green mortgage?
While still relatively new in the mortgage market, green mortgages are designed to encourage homeowners to make their homes as energy-efficient as possible. They do this by offering small financial perks for customers with Energy Performance Certificate (EPC) ratings of A or B.
EPCs measure the energy efficiency of a home, with ratings ranging from A – the most energy efficient – to G – the least energy efficient. Having a high EPC rating generally means lower energy bills, and of course a reduced carbon footprint. When properties are listed for sale, they must by law display their EPC rating. However, some properties, such as homes which are listed, do not have to provide an EPC.
If you’re eligible for a green mortgage, a lender might offer you a lower standard interest rate on your mortgage for the duration of the loan. Don’t dismiss it if the percentage difference looks small – when it comes to accumulating interest, even a small reduction can go a long way over the years. A lender might also increase the amount they are willing to lend you, or provide cashback when your mortgage completes.
Green mortgages aren’t restricted to just standard mortgages. It’s also possible to get green lifetime mortgages, remortgages, or buy to let mortgages. You can find out more about all the different mortgage options that may be available to you, and how they compare, in our articles Mortgages for over 50s: What you need to know and Mortgages for over 60s: what you need to know.
Lifetime mortgages are equity release plans, designed for homeowners who want to unlock some of their property wealth, whilst remaining in their property for the rest of their life. Rather than making monthly payments as you would with a standard mortgage, the interest you owe builds up over time and is only paid back, along with the capital, when you either die or move into long-term care.
While a lower interest rate from a green lifetime mortgage might not end up benefiting you directly, it could well make the difference of a few thousand pounds left in your estate after the loan is paid off, and this could go to your beneficiaries. You can read more about lifetime mortgages in our article Equity release – what is it and how does it work?
How can I apply for a green mortgage?
You can apply for a green mortgage in the same way as you would for any other mortgage.
The main difference is that generally, lenders will expect you to provide your EPC at the application stage, and it usually must be at least a B in order for you to qualify. Some lenders will contribute to the cost of getting an EPC in the form of a small cashback payment alongside the loan itself.
If you’re not sure whether a green mortgage is right for you, or whether you’re eligible for one, you may want to seek professional advice on the options available to you.
If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
How do I check my EPC rating?
If you don’t already know what your property’s EPC is, you can check here on GOV.uk. Simply enter your postcode and it will let you know whether there is a rating, what it is, and how long it is valid until. Those in Scotland will need to search on the Scottish EPC register instead.
If you do not have a valid EPC for your property, you can arrange to get it assessed and obtain one. You can find an assessor here on GOV.uk. Bear in mind that the cost of an assessment will vary depending on the assessor and the size of the property.
How can I improve my EPC rating?
If you want to improve your property’s EPC rating then what you can do will depend on your property and your budget. This can range from small changes to quite dramatic renovations which may involve a large financial outlay, so make sure you’re doing what’s realistic based on your individual circumstances.
Generally, anything that makes your home consume less power, or anything that generates renewable energy, will have the potential to boost your EPC rating.
Here’s a few things the Energy Saving Trust recommends:
- Insulation: Loft insulation is relatively cheap and easy to install, but can help keep your home warm and cut your bills dramatically. You may be able to insulate other walls in your house as well
- Double glazing: Getting double glazing for your doors and windows helps keep out both cold and noise
- Replacing your boiler: A new, more efficient boiler is likely to cut long-term costs and boost your EPC rating
- Solar panels: These produce greener, cheaper energy for your home.
Which lenders offer green mortgages?
The number of lenders offering green mortgages is still relatively limited, but the market is expected to continue growing in years ahead.
Lenders which currently provide them include Ecology Building Society, Shawbrook Bank, NatWest and Barclays. For example, NatWest offers reduced rates on certain products, such as their Green Remortgages and Green Buy to Let Mortgages, including cashback for an energy assessment.
Nationwide is currently offering a “Green Additional Borrowing mortgage”. This is a loan of £5,000 to £25,000 at a lower initial interest rate, on the condition that you spend at least 50% of it on energy-saving home improvements, such as solar panels, cavity wall insulation, an electric car charging point, etc.
Many other building societies across the UK also offer green mortgage products and there are also green equity release products available.
The ‘For You ‘Lifetime Mortgage’, for example, from retirement specialists Just Group, offers a discount on interest rates for the duration of the loan if your home has an EPC rating of A or B, and will contribute £50 to your assessment if you need one. Remember though that equity release should never be entered into lightly.
If you’re taking out an equity release plan, you must seek professional financial and legal advice and it’s vital that you use an advisor who is trained in equity release and who can recommend a suitable product from a member of the Equity Release Council.
If you’re looking for somewhere to start, you can get expert advice from an independent equity release specialist with Unbiased. They’ll listen to your needs and talk you through your options, so you can decide if equity release is the right option for you.
Do I need to improve the EPC rating on my buy to let property?
Since April 2020, if you let out a property, you need to ensure that it has an EPC rating of at least E. If it doesn’t, you should try to make changes to the property to achieve this before attempting to rent out the property.
The number of green buy to let mortgages on the market has tripled in the last six months to April, according to Defaqto, meaning now could be the ideal time to start making your buy to let property as eco-friendly as possible.
Katie Brain, consumer banking expert at Defaqto, said: “If you are thinking of getting a green mortgage, it is worth discussing your options with a mortgage adviser who can explain what is available to you. Generally, newer homes will meet the criteria as they are built with modern regulations in mind, but older properties may need to be updated to ensure they are energy efficient. The cashback incentives typically offered with these ‘Green’ mortgages can make it worthwhile as opposed to the standard mortgage range.”
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