Green mortgages date back to 2006 and are a method of lenders awarding homeowners a preferential rate or other incentives such as cashback.
These products were always specialist packages until high-street banks created offers in 2018.
Now they are more commonly available for newly built properties but there are mortgages available for existing homes that retrofit green technologies aiming to improve the EPC of the property.
The UK government is pushing the narrative on greener homes ensuring that lenders for both new builds and refurbishment projects get the message. As a result, there’s been further evidence of lenders creating loan packages for existing mortgage customers with 0% interest to help improve their energy efficiency.
Loans can only be used to install solar panels and air source heat pumps etc, while there are other initiatives such as the Great British Insulation Scheme and the Connected for Warmth scheme that will provide free home insulation based on factors such as council tax band.
Why are lenders providing incentives through green mortgages?
Lenders have pledged to help meet the UK’s decarbonisation targets and thus have an obligation to improve the EPCs of the properties on their mortgage book.
The Financial Conduct Authority (FCA) has stated that they want to see mortgage lenders delivering on their net zero pledges, and consumers benefiting from homes with enhanced energy efficiency. In one statement the chairman said:
We want to see ongoing innovation from lenders, with compelling incentives that will influence consumer decisions as they seek to improve the energy efficiency of their homes.
What about the buy-to-let market?
This is interesting because of the extra strain put on landlords to improve their EPC by law. Initially, the UK Gov was putting in plans to ensure that landlords have an EPC of C and above.
This situation would be extremely expensive for landlords who have property stock of houses built pre-1900.
In September 2023, the prime minister announced that they would no longer be considering these plans as it would distraught an already volatile rental market.
What products are out there?
It is fair to say that the best incentives are for new build projects with preferential rate mortgages. If you wish to renovate a property and achieve a better EPC then there are cashback alternatives or anytime loan situations.
So how would you improve your energy efficiency and EPC certificate?
There are plenty of options out there, especially for insulating your home. For most properties that fall into an eligible council tax band, you can get free home insulation through the Connected for Warmth scheme. This will increase your EPC and decrease your home fuel consumption.
In addition to that, we have a boiler upgrade scheme where you can claim up to £7,500* to exchange your gas boiler for an air-source heat pump.
For this work, it’s strongly advised you insulate your home correctly first. This includes evaluating your windows.
Lastly, you should research solar panel installation and see how much money you will save.
It’s also advised to get a thorough EPC done. You will notice that your existing EPC may have assumed a measure. For example, if you live in a terraced house and your walls are labelled ‘Very Poor’. That might be worth investigating.
So is it worth applying for a green mortgage?
Like all financial decisions, it’s best to do your research. Currently, there is nothing really eco-friendly about these products, it’s still a loan and you pay it back.
There are also regular mortgages that can beat the current green offering when you weigh up the following factors:
- Loan to value percentage
- Interest rate
- Set up payment
- Fixed-rate term
However, we’re in the early days of high interest rates so it will be a while before the market stabilises.