What is a green mortgage and which homes qualify?
If you’re looking for a mortgage deal right now, you may have noticed that more banks and building societies are offering loans they are referring to as ‘green mortgages’.
Over the past 18 months, more lenders have been introducing these types of deals, which offer lower interest rates and various cashback offers to owners of energy-efficient properties.
So what exactly is a ‘green mortgage’?
There’s no single definition, says James Pagan, head of mortgage products at Nationwide. Lenders are experimenting at the moment, so it’s a catch-all phrase which covers everything from mortgages which give lower interest rates on home loans, to offering you a cash payment if you buy a property which qualifies as a green home.
How do I know if a property will qualify?
It’s all about the EPC, or Energy Performance Certificate, which was introduced in 2007. Every home which is being sold, or is newly built, has to have an EPC inspection which measures its energy efficiency on a scale of A to G, looking at things like how thick the loft insulation is and whether the boiler is working efficiently.
The criteria of lenders can differ, but usually ‘green mortgage’ deals are offered to owners of a property with an EPC rating of A or B.
An EPC is valid for ten years. You’ll find the EPC rating on every property listing, so you can see straight away how green a home is. If for any reason it’s not present, make sure you ask the estate agent for the details.
New-build homes will have a Predicted Energy Assessment (PEA) before they’re finished. This will give you a predicted energy-efficiency rating which you will need to provide to your mortgage lender.
What sort of deals can I get?
Nationwide’s Green Reward Cashback offers an automatic £250 payment if you buy a property with a B+ rating, or £500 if you buy an A-rated home.
James Pagan says: “We are trying to encourage and reward people who buy properties which are already energy-efficient.”
Barclays, meanwhile, offers lower interest rates on some of its fixed-term deals if you buy a new property directly from the builder or developer, and it is in band A or B. Interest rates for these deals currently start at 1.74 per cent.
Royal Bank of Scotland also has some green mortgage deals, offering £250 cashback to buyers of energy efficient homes, and discounted two- or five-year fixed-rate deals.
And Paragon Bank has green deals for properties with EPC ratings of A, B, or C. These are aimed at buy-to-let landlords, who can access lending rates from 3.5 per cent.
How do I go about making a property more energy efficient?
There are all sorts of things you can do. Insulation – of lofts and cavity walls – is key to preventing heat loss, as is double or triple glazing. A new boiler will be a more efficient way to provide heating and hot water, while you can also generate your own green energy by using solar panels.
Why does it matter?
Around 14 per cent of the UK’s total emissions are created by housing – almost as much as those caused by shops and offices. Cutting domestic emissions could have a significant impact on global warming.
And you should expect to see green mortgages becoming more and more commonplace, because the Government is putting pressure on mortgage companies to increase the proportion of energy-efficient homes they lend on.
“There is a scenario where the energy efficiency of your house affects how much you can borrow and the price that you will pay,” said Pagan.