What is a Green Mortgage?

Picture of Ian Leyden

Ian Leyden

Ian is the Founder Director of Argyll Drummond

Green Mortgage

A number of major high street banks and building societies have started to offer green mortgage products. The idea is that if you’re moving into an energy-efficient home (one that has an EPC rating of A or B) or plan to make your home greener with the addition of solar panels or better insulation, your lender will reward you with a better interest rate or cash-back on your mortgage.

How do green mortgages work?

A green mortgage rewards you for buying or owning an energy-efficient home. This can be achieved through solar panels, improved cavity/roof insulation, efficient heating systems, LED bulbs, etc. The same rules apply if you make improvements or renovations to your home with the goal of making it more energy efficient.

Lenders will offer preferential terms to house buyers if they can prove that the property they’re looking at meets certain environmental standards. In most cases, homeowners will either get cheaper interest rates on their property with high energy efficiency ratings (typically an A or B rating on the property’s energy performance certificate), or they will be offered cash-back incentives when buying an energy-efficient property.

Should I apply for a green mortgage?

Applying for a green mortgage is generally the same as applying for a standard mortgage. If the EPC rating is high enough, the following benefits can be achieved:

Lower interest rates: Lenders see the long-term value in green mortgages, so you’re likely to receive lower interest rates. Less interest means lower monthly repayments. With a green mortgage, you can save more money regularly compared to a standard mortgage.

Reduced energy bills: With energy bills increasing dramatically, a more energy-efficient home requires less power to heat and keep warm, and even the light fittings are more energy-efficient. This helps you save more money and provides greater financial security during economic shifts.
Increased property value: As we move closer to the government’s net-zero target, eco-friendly homes will become more desirable and sought after. Consequently, they may increase in value. By making eco-friendly changes now, before the market changes, you can position your investments for future growth.
Preservation of value: During times of economic uncertainty, a green mortgage can hold its value more effectively than other mortgages of the same value. This is largely due to the aforementioned factors, making it an important point to note. Not only are you saving money each month on energy bills, but your investment is also more stable and secure than ever before.

Am I eligible for a green mortgage?

Your eligibility depends on your EPC rating. If it’s below an ‘A’ or ‘B’, you won’t be eligible for a green mortgage just yet. However, if you can show that you’re ready to make improvements and renovations to your home to make it more energy efficient, then lenders may be willing to adjust the criteria for you.
You can also remortgage to a green mortgage if your property has a high enough EPC rating. However, you will still need to meet the standard mortgage lending criteria set by your lender. Remortgaging is also an option if you’d like to free up some equity to make these improvements.
Plenty of lenders and institutions are ready to offer green mortgages; you just need to know where to look.
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