Green mortgages – what is it and is it worth it?
A green mortgage is a label used for mortgages that offer preferential terms for properties that are energy-efficient, for example, achieve energy efficiency rating (EPC) of A or B.
Those deals have been around for a few years but in recent months we have seen an increase in the numbers of lenders offering such deals.
Green mortgages are most commonly used for new-build properties but also for older properties that have been upgraded to meet the higher standards and fit the criteria. Since only 3% of UK homes have an EPC rating of A or B, according to the latest quarterly release from the Ministry of Housing, Communities and Local Government, there might not be as much demand for such mortgages at the moment but will become more popular once the homeowners start to renovate their properties.
Lower rates for green homes
Typically the green mortgage will have a lower interest rate comparing to the standard mortgage deal. Several lenders now offer new-build specific mortgages that will have lower preferential rates, for example, Virgin Money offers a lower interest rate than comparably standard deals and additional cashback. Barclays has a Green mortgage with no fees for up to 90% LTV.
Cashback deals for green homes
Some lenders will offer cashback for green mortgages – Nationwide, Virgin and Foundation Home Loans all offer generous cashback on green mortgages. All cashback is paid on the completion of the purchase.
Lenders will also offer home improvement loans to increase the energy efficiency of the property with TSB offering additional lending up to 85% LTV for a range of home improvements, including loft and wall insulation. Customers will receive a discount of 0.50% (no product fees) where it is used to fund improvements that will reduce the emissions from their homes.
In 2008, new rules were implemented for all rental properties, requiring the EPC rating to be at least E. However, government proposals are most likely to increase the threshold to Band C by 2030, “where practical, cost-effective and affordable.”
What is EPC and how I can improve it?
The Energy Performance Certificate shows how energy-efficient the property is. The document provides a current and potential score out of 100, and grades A to G. EPC is valid for 10 years and every property marketed for sale needs a current EPC certificate. For all rental properties, a valid EPC certificate with a grade E or above is also required.
There are several ways to improve your EPC grade:
- Double or triple glazed windows
- Loft insulations
- Wall insulation
- Smart meters
- Solar panels
- More efficient boiler
- Low-energy lighting