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What are Green Mortgages?

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What is a green mortgage, and how does it all work? We delve into the ins and outs to share everything you need to know.

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What is a green mortgage?

A green mortgage essentially ‘rewards’ you for saving energy at home, offering buyers of energy-efficient homes more favourable terms. 

Each lender offers something different, but it could be lower interest rates, or cashback, for example. They could also offer a larger loan. You’re more likely to be approved if you’re buying a new build, designed to be super energy-efficient.

How do green mortgages work?

The goal is to support ecological and sustainable practices. However, it works in different ways for different lenders. For example, some may offer a discount on the mortgage interest rate based on the improvement to your property’s EPC rating. This discount would then be applied to the full term of your mortgage. 

If you’re buying a new build, you should receive a Predicted Energy Assessment to provide a predicted energy rating (rather than an EPC). Lenders will likely ask to see this to ensure you qualify for a green mortgage.

Who can get one?

They can apply if you’re: 

How do you qualify?

Each lender will have their own terms and conditions when it comes to green mortgages, such as maximum loan to values (LTVs).

The property will also likely need to meet a minimum level of energy efficiency, determined by an Energy Performance Certificate. It’s likely it will need to be in the band of A or B.

Bear in mind the other rules of applying for a mortgage also apply. You’ll likely need:

  • Proof of income/employment 
  • Proof of ingoings & outgoings 
  • A good credit score 
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Why do lenders offer green mortgages?

When pricing a loan, a lender will have to carefully weigh up risk. So, lenders offer lower rates for green mortgages as their considered lower risk, because:

  1. Generally-speaking, ‘green’ properties have more value
    1. Even if the property market dips, green properties have ‘green value’ and are considered attractive and likely to hold their value 
  2. They’re cheaper to run; your utility bills will likely be lower
    1. This means you’re less likely to fall behind on your mortgage repayments 

You could also lower your carbon footprint by switching energy suppliers. Choose one backed by renewable energy!

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What are the downsides to green mortgages?

Not all green mortgages are necessarily cheaper, even if you factor in interest rate discounts. This could be an issue if cost is your main priority, as it is for many. You should always ‘shop around’ and compare mortgages, don’t just go with the first deal you see. 

Use a mortgage calculator to work out how much you can afford each month. Factor in not just monthly repayments, but also other outgoings, such as bills. 

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Last Updated: October 21st, 2021