November 17th, 2023.
What is a Green Mortgage?
Put simply, a green mortgage is a mortgage or loan that rewards you for purchasing an energy-efficient property, or for making home improvements on your property in order to boost its energy-efficiency.
You’re more likely to be eligible for a green mortgage when buying a new-build directly from a construction company or developer, though there are lenders who will offer you incentives on older homes (if you own it) that are due to be adapted for energy-efficiency purposes.
In this guide to green mortgages, we will cover the following:
- When was the green mortgage introduced?
- How to qualify for a green mortgage
- The benefits of having a green mortgage
- Can a broker help secure a green mortgage?
1. When was the green mortgage introduced?
The green mortgage was first introduced by Barclays Bank alongside their greener home rewards in 2018 and quickly gained traction and popularity thanks to the kind of favourable terms such as lower rates of interest and cashback. The green mortgage now represents 15% of the overall UK market.
2. How to qualify for a green mortgage
Different lenders have different qualifiers, terms & conditions, and maximum LTVs (loan to value), as you’d expect. Most lenders will require the home to be at a minimum level on the energy efficiency rating.
The easiest way to find out how to qualify for a green mortgage is by requesting a callback from an experienced broker.
Qualification by lender
Below are the different qualification criteria for a green mortgage per lender:
- NatWest: On properties that have an EPC (Energy Performance Certificate) rating of A or B, NatWest will offer lower mortgage rates to both homebuyers and those remortgaging. This would be to a maximum LTV of 85%
- Barclays: Barclays also requires you to have an EPC of A or B, with an efficiency rating of 81 or higher. You must be purchasing the property to live in, and it must be a new-build
- Nationwide: If you have an energy-efficiency rating of 86 or above, Nationwide will give you £250 cashback, rising to £500 for those with scores of 92+. This only applies to homemovers and buyers, though there is a Green Additional Borrowing Mortgage that allows homeowners to make energy conscious improvements to their homes
This gives you an idea or theme of the perks associated with green mortgages. If your property is of a certain EPC rating, you can benefit from a more favourable mortgage agreement, providing you meet the lender’s other criteria.
How energy efficiency ratings work
The EPC rating certifies your property from A–G, with A being the most energy-efficient and G being the least. As we touched upon earlier, numerical gradings from 1-100 also exist, with 100 being the most efficient.
New-builds have a PEA (predicted energy assessment) that provide an estimation of the home’s energy efficiency rating. All properties require an EPC when being built, rented or sold, though if you have a new-build, you can use your PEA rating on a mortgage application in the meantime.
3. The benefits of having a green mortgage
There are an array of appealing benefits to having a green mortgage aside from the peace of mind that comes with contributing towards sustainability. Those benefits include:
Green mortgages save you money
Arguably the most poignant advantage of a green mortgage is it can save the buyer money – both through cashback and lower interest rates.
Funding for energy saving home improvements
For homeowners, green mortgages offer an opportunity to fund energy saving home improvements that can drive down energy costs, help the environment, and contribute to the UK’s 2050 target of reaching net zero carbon emissions.
Future proofing your home’s value
Green mortgages also offer the added bonus of ‘future proofing’ your property now, in order to make it a more a tempting proposition, should you want to sell it later. Again, potentially saving you costs and increasing property value.
4. Can a broker help secure a green mortgage?
With the recent volatile mortgage market and its effect on interest rates, you want to speak to somebody who knows the industry, especially for a specialist product such as this one.
Dedicated brokers remove stress, paperwork and time, as well as having access to exclusive rates and products (that the public can’t access). They also have close relationships with lenders and so can recommend the one that best suits your specific needs.