When it comes to green mortgages, there is a lot to learn about what they are, and how they exactly work. We delve into the ins and outs to share everything you need to know about the concept of green mortgages, so you can make an informed decision.
If you want to explore your green mortgage options and find the best deal suited to you, we can connect you with our recommended mortgage adviser. They offer fee-free advice for most customers and have access to over 12,000 deals from 90 lenders to find the right green mortgage that suits you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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, such as larger loans, cash back or lower interest rates, for example.
The type of incentives can vary by lender. In general, with a new build, you’re more likely to be approved, as new build houses are designed to be energy-efficient.
How do green mortgages work?
Green mortgage products are initially designed to support ecological and sustainable practices. Some lenders, for example, may offer a discount on the mortgage interest rate based on the improvement of your property’s EPC rating. This discount would then be applied to the entire term of your mortgage.
However, if you’re buying a new build, you should receive a Predicted Energy Assessment. The Predicted Energy Assessment is done to provide you with a predicted energy rating. Lenders will likely ask to see this to ensure you qualify for a green mortgage.
Who can get a green mortgage?
If you’re buying a home that is eco-friendly, or are making energy-saving home improvements, you might be a good candidate to be eligible for a green mortgage. But even if you’re planning a renovation or building a new build, its worth checking it out.
Qualifying for a green mortgage involves meeting certain standards or so called conditions that are set by lenders. Often this includes having a property that meets a certain level of energy efficiency. Usually this has to fall within the A or B bands of an Energy Performance Certificate. Next to this, the standard mortgage application requirements will apply as usual.
How do you qualify for a green mortgage?
Generally speaking, 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 need:
- Proof of income/employment
- Proof of ingoings & outgoings
- A good credit report
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:
- Generally speaking, ‘green’ properties have more value
- Even if the property market dips, green properties have ‘green value’. And are considered attractive and likely to hold their value
- They’re cheaper to run; your utility bills will likely be lower
- 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!
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. Speak to a mortgage adviser who can look at the options available to you and can compare green mortgages to suit your circumstances, don’t just go with the first deal you see.
Use a mortgage calculator to work out what you can afford. Factor in not just monthly repayments, but moving fees and other outgoings, such as bills.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Need a mortgage adviser?
We can connect you with our approved mortgage adviser – they can explore your green mortgage options and find the best deal for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Last Updated: July 19th, 2023
