Green Mortgages: what are they and do you need one? – Ginkgo Financial Ltd
November 23, 2021

Green Mortgages: what are they and do you need one?

"As Kermit the frog once said, “It isn’t easy being green.”"

As Kermit the frog once said, “It isn’t easy being green.” The loveable amphibian wasn’t, of course, talking about home loans, but he might just as well have been. When Barclays introduced the first ‘green mortgages’ in 2018, there wasn’t a huge amount of media coverage. Fast forward to 2021 – with headlines dominated by the climate emergency, carbon targets and Environmental, Social and Governance (ESG) issues - and green mortgages are now starting to make news.

But are they just green-washing or will they genuinely benefit the planet – and our pockets?

Much of the UK’s housing stock is old and inefficient (in energy-consumption terms). So the idea behind green mortgages is to incentivise people to buy homes that are more energy efficient – which, in turn, should encourage homeowners to make improvements. The benefits to the planet are obvious. The benefits to the lender are less obvious. Essentially, it boils down to risk: if you compared two individuals with the exact same financial circumstances but one had a more energy efficient home, it would be safe to assume that the more efficient home will have reduced energy bills. This is a reduced risk for a lender, as the energy efficient homeowner will spend less on bills, which means better affordability and a reduced risk of repossession. Based on this logic, a handful of high street lenders and building societies are prepared to offer better rates, more cashback, or reduced fees on mortgages for the most energy-efficient homes.

I say ‘most energy-efficient’ because to qualify for one of these mortgages, you need to have an Energy Performance Certificate rating of either A or B. Nothing lower will do. If you’ve set your heart on a rose-covered cottage, complete with draughty windows, or you want to get a new deal on your current home without ripping out the gas boiler and installing a ground-source heat pump, you may be frustrated.

But wait one minute… Even if the property in question rates A or B in its EPC, there’s no guarantee that your specific situation will mean a green mortgage is the best deal for you. One key area I look at as a mortgage adviser is all the extra fees that lenders add on to their products. From experience, the best rate is not necessarily the best deal. There aren’t yet many green mortgages to choose from, and you may well find that conventional mortgage products provide you with value and terms that suit your circumstances better, without the stringent criteria.

That doesn’t mean though that you shouldn’t consider the ‘green’ credentials of a property when looking for a mortgage. It may pay to invest in energy efficiency now, whether you’re buying, selling or staying put. Partly because green mortgages are going to become more mainstream and one might prove a suitable product for you down the line. But also because a greener home should be cheaper to run, saving you money in the long term. And that’s good news for you – and good news for the planet!

Your home may be repossessed if you do not keep up repayments on your mortgage.

By William Busby, Mortgage Adviser

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