Could you Save Money by Having a ‘Green’ Mortgage?

According to Which? lenders are offering cheaper rates and cashback deals for energy-efficient properties. This means that home buyers could benefit from cheaper rates and cashback incentives by taking out a ‘green’ mortgage deal.

As the world moves towards a sustainable future, green mortgages are becoming increasingly popular. Even banks are moving towards sustainable lending, as home buyers are prioritising environmentally friendly lifestyles. But what are green mortgages and how can you qualify for cheaper rates or cashback when buying a home or remortgaging?

What is a Green Mortgage?

Green mortgages are deals that are available to those who buy environmentally friendly homes or make energy-efficient home improvements to their property. These mortgage deals have been around for several years and it is not until recently that it has started to take off.

The green mortgages usually offer cheaper rates when you buy a property that conforms to a specific energy standard. For example, lenders will often require that the property achieves an Energy Performance Certificate (EPC) rating of A or B. Often green mortgages are available on new-build homes. However, they can also be available on properties that have been renovated to meet high efficiency standards.

How do Green Mortgages Work?

There are three kinds of green mortgage:

  • Deals that can offer lower rates for people who purchase energy-efficient properties.
  • Standard mortgages that can offer cashback to people who buy energy-efficient properties.
  • Mortgages that offer cheaper rates or cashback when people make green home improvements.

Are the Rates Better on Green Mortgages?

If you are already with a bank that offers green mortgages, such as, Barclays, NatWest or Nationwide, some of their deals will be a great way of accessing more money to fund home improvements.

However, if you are looking to buy a new-build or existing property with an EPC rating of A or B, is it worth taking out a green mortgage or sticking to a standard product? According to Defaqto, there are only two fixed-rate green mortgage deals that are cheaper than the best deals currently on the market. In addition, on the five-year fixed-rate mortgages, standard mortgages were cheaper, however, in almost all cases the green mortgages were among the lowest rates available.

Will Green Mortgages Become More Common?

According to Which? green mortgages are highly likely to become mainstream in the coming years, as consumers and lenders become more environmentally conscious. The Climate Change Committee (CCC) reported that 19 million of the 29 million homes in the UK have an EPC rating of below C. To meet their emission target by 2050, the CCC says that the government should ensure all homes have a rating of at least C from 2028.

Mortgage lenders could play a huge role in this, as they could review their rules to encourage green mortgages and offer additional borrowing to help homeowners to make green improvements. With this in mind, it is clear that this will become more common over the years.

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