Green mortgages and financing energy-efficient homes in the UK

Mortgages

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If you’re looking to take out a new mortgage or are considering your options because your current deal is coming to an end, you may have heard of green home finance or green mortgages.

If you’re considering purchasing a new-build home or are hoping to improve the energy-efficiency of your property, a green mortgage could be worth looking into.

What are green mortgages?

The growing popularity of  green mortgage products over recent years is significant, with just four available in 2019 to over 60 as at August 2023, according to the Green Finance Institute.

There are two core types. One is designed for buying or remortgaging energy-efficient homes and is often accessible to those purchasing or remortgaging properties that have Energy Performance Certificate (EPC) ratings of A or B. Lenders may offer slightly lower mortgage rates or cashback incentives.

The other is for green home improvements and is tailored towards homeowners who want to make energy-saving improvements to their property. Typical qualifying improvements include installing solar panels. Lenders might provide a lower rate on the additional money you’re borrowing, or a reduced mortgage rate once the work is finished, or cashback.

It’s worth noting that it’s not the mortgages themselves that are green, but the property the mortgage relates to.

Benefits of green mortgages

Green mortgages can offer a variety of advantages. The first is the financial incentive itself, such as the slightly reduced mortgage rates or cashback.

That said, it’s important to note that shopping around for the most suitable mortgage deal for you and your current financial situation is always prudent. Products change and there is no guarantee that a green deal will be the most beneficial deal for you at the precise moment you are looking for one.

Then there is the fact that living in a more energy-efficient property means lower bills. Reassuring for property owners faced with high energy costs, the peace of mind this can bring is worth its weight in gold.

And if being environmentally friendly is a priority for you, you’ll also be able to enjoy peace of mind from knowing that you’re taking steps to reduce your carbon footprint. 

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To qualify for a green mortgage, you will need to be able to prove an EPC rating of A or B.

Government and lender initiatives supporting green mortgages

In 2019, the government confirmed its commitment to supporting the financing of energy-efficient home improvements, announcing the allocation of a "£5 million fund to increase [the] number of green mortgages…”. This formed “part of Green Finance Strategy”.

It was also confirmed that a £10 million innovation fund was available for encouraging lower costs to refit old homes.

The aim was to enhance the energy efficiency of 17 million homes with a view to becoming “a net zero emissions economy”.

More and more lenders are getting on board, though work continues to strengthen options for homeowners.

Eligibility criteria for green mortgages

Remember that to qualify for a green mortgage when you’re buying a property or remortgaging, you will need to be able to prove an EPC rating of A or B.

To qualify for a green mortgage to make energy-efficient adaptations to your current home, it’s likely you’ll simply need to show your plans.  

How to apply for a green mortgage

Be sure that you’re applying for the mortgage that’s most suitable for you and your individual circumstances. Seeking the advice of a fully qualified and experienced whole of market adviser can be priceless, as you are keeping your options as open as possible. It’s about choosing the mortgage that will best serve you, based on your current circumstances. A mortgage adviser will be able to discuss green mortgages with you.

When applying for a green mortgage, the process is much the same as applying for a regular residential mortgage. Do all you can in advance to give yourself the best chance of being accepted.

Once your offer is accepted on a ‘green property’, or you’ve made your green home improvement plans, you can make your application. If you’re using an adviser, they can make the application on your behalf, shouldering any initial to-ing and fro-ing from the lender.

Green mortgages aim to encourage homeowners to live in a more energy-efficient way. Designed to help create a greener world as climate change becomes increasingly vital, green mortgages can also help reduce bills at a time when energy costs are high.

To find out more about green mortgages and establish the most suitable mortgage for you and your financial circumstances, contact our team of specialists today.

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