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.
If you want to explore your mortgage options and find the best deal suited to you, we can connect you with our recommended mortgage adviser. They offer fee-free advice in 24 hours and a decision on your mortgage in 5 days. Or they will pay you £100!
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:
- Buying an eco-friendly home
- Making energy-saving home improvements to your property
- Carrying out renovations/conversions
- Buying a new build or self-build
How do you qualify?
Each lender will have its 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 compare 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.
Need a mortgage adviser?
We can connect you with our approved mortgage adviser – they can explore your mortgage options and find the best deal for you.
Our recommended mortgage adviser offers fee-free advice in 24 hours and a decision on your mortgage in 5 days. Or they will pay you £100!
Your home may be repossessed if you do not keep up repayments on your mortgage. Terms and conditions apply to the mortgage decision promise.
Last Updated: April 6th, 2022