homes account for more than a fifth of the UK’s total CO2 emissionswhich could explain why the government and others believe green mortgages could be a critical factor in moving towards a sustainable future.
While they’ve been around for some time in one form or another, green mortgages haven’t seen a big boost: a survey released this week found that 94% of brokers had never sold one.
However, Nick Mendes, a mortgage technical manager at broker John Charcol, believes there will be “a huge tidal wave” in the home loan market in terms of supply over the next year.
For a long time it was pretty much only the eco-building society that sold green mortgages, but new products have been piling up recently.
Many of the UK’s largest financial players are now offering products, although the financial incentives for some businesses are pretty negligible.
The basics
By and large, a green mortgage is one that rewards someone for buying or owning an energy efficient home by offering them cheaper terms than standard. Right now, that usually means either a slightly lower interest rate or cashback on taking out the mortgage, or both. Some offers are limited to people buying new build property.
In addition, some lenders are offering their existing mortgage customers additional loans at discounted rates to pay for environmentally friendly home improvements like replacing draughty windows, upgrading an outdated heating system, or adding solar panels.
Last month, the government said it was keen to help develop a competitive market in the area and is considering plans to link mortgages with green home improvements Implementation of targets for banks and building societies.
The background
To be at the center of it all Energy certificates (EPC). An EPC is always required when a property is built, sold or rented. It gives the building an energy efficiency class from A (most efficient) to G (least efficient).
The suitability for many of the green mortgage deals is linked to the property’s EPC rating – it has to be A or B, for example. However, properties that have not been sold or rented in a long time – of which there are several million – will not have any.
A big problem is the fact that the UK housing stock is notoriously old and leaky, and that is especially true of some of the properties most sought after by buyers, such as many Victorian and Edwardian terraces, with their drafty but sought-after original floorboards and sash windows. Last month the government announced that there were around 15 million households in England – 60% of the total – below EPC Band C in 2019. effective, practical and affordable ”.
However, Sarah Coles of investment firm Hargreaves Lansdown says that while some homes can be upgraded at a relatively low cost, other homeowners find it unaffordable.
A current study by the Bundesbausparkasse found the average bill for upgrading a property to a Category C rating was around £ 8,100. Installing all of the energy improvement measures recommended for homes currently F or G would be the most expensive, it said: an estimated £ 25,800. You would enjoy savings on your energy bills, but the financial payback can take many years.
Earlier this year, the real estate website Rightmove said his research stated that there are currently nearly 1.7 million homes in England and Wales that are rated between D and G and cannot be upgraded to a C rating.
What is on offer now?
Currently, green mortgage borrowers tend to be rewarded with lower interest rates or cashback, according to Mark Harris, chief executive of mortgage broker SPF Private Clients.
Lenders offering the former include NatWest and Barclays. For example, NatWest offers a discounted rate on a two-year or five-year fixed-rate mortgage, in some cases with cashback. To qualify, the property you are buying or rescheduling must have an EPC rating of A or B. For some deals, the rate reductions are very small. For example, at the time of writing, NatWest offered a standard two-year rate with a 1.08% interest rate for up to 60% mortgage lending value (LTV) that came with £ 150 cashback. The green version of this mortgage had an interest rate of 1.07% and a cashback of £ 250.
Some of the other NatWest deals gave you a bit more for your green money: For those hoping to reschedule, there was a standard 5-year fixation of up to 85% LTV at 2.58% with no cashback. With the green version, you paid 2.49% and received £ 350 cashback.
However, Harris says that while NatWest’s green mortgages are slightly cheaper than the lender’s core range, there may be cheaper deals elsewhere. For example, while NatWest offered a green 2-year fix at 1.17%, HSBC had a non-green 2-year fix at 1.04% (both were available up to 75% LTV and carried almost identical fees).
“Every lender has a slightly different approach to what constitutes a green property,” says Harris. For some, you have to buy a new build directly from the builder or developer. This is the case with Barclays, which require an EPC rating of A or B.
In April, Nationwide launched its Green Reward program, which gives buyers of a home on any of its mortgages £ 250 cashback if it has a high B rating or £ 500 if the property has an A rating. Around 1,000 payments have been made through the program to date, with 90% of recipients receiving £ 250.
Likewise, the Halifax offers £ 250 cashback when a property is rated A or B.
Meanwhile, some lenders, such as Nationwide and TSB, are offering their existing mortgage customers a discounted “green add-on loan” rate when they perform energy efficient home improvements.
Then there are specialized providers like Ecology who offer mortgages for things like do-it-yourself, renovation and remodeling, where energy efficiency is a key element.
When it comes to mortgages for rental, it goes faster. “Landlords have a greater incentive to be green as new regulations will be introduced from 2025 that require rental properties to be rated C or higher. The transition will be gradual, starting with new rentals of six months or more, followed by all leases from 2028, ”says Harris.
The future
In the months ahead we will see dramatic changes in the mortgage market, says Mendes of John Charcol. We might start seeing fixed price offers where, for example, the price you pay within the set time period goes down when you do certain green home improvement jobs.
Mendes believes there could also be changes in mortgage affordability where someone with an energy efficient property could potentially borrow more if their energy bills and bills are lower.
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