Green Mortgages



What is a green mortgage?

November 3, 2021
Information published was correct at the time of writing

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EPC rating next to a cut out wooden house

Firstly, let’s define – a green mortgage is when a bank or lender offers the buyer preferential terms if they can demonstrate that the property they are borrowing for meets certain environmental criteria. This may include a newly-built home with an environmentally-friendly green roof, or solar panels.

In other words, a green mortgage describes a mortgage designed specifically for green buildings, or a mortgage where the borrower commits to invest in improving an existing building’s environmental performance.

There are, in essence, three types of green mortgage:

  1. Lower interest rates for people who buy an energy efficient home
  2. Standard mortgages that offer cash back to buyers who purchase an energy efficient home
  3. Mortgages that offer a cheaper interest rate or cashback to buyers who make green home improvements

With so much awareness around climate change, many buyers are keen to reduce their impact on the planet and some older, non-energy efficient properties are being seen as less desirable.

Taking action now puts a home’s energy efficiency and sustainability front of mind for the property owner at a critical point in the life of the building, when decisions about renovations may be made.

Research by the Energy Saving Trust in the UK suggests that the most significant energy saving opportunities are in traditional buildings.

From a financial standpoint, green buildings should cost less to run as they’re more efficient energy-wise, which means lower energy bills. This, from a lender’s perspective, puts a buyer in a better financial position to be able to repay their loan and reduces what the banks call ‘probability of default’.

Participating lenders (including Natwest, Halifax and Barclays) are offering fixed rate green mortgage deals on properties with an energy performance certificate (EPC) rating A or B, or efficiency improvements that increase the EPC by 12 points within 12 months of taking out the mortgage, in some cases.

In terms of looking to the future, energy efficient homes are set to increase in value at a greater rate than other homes. This will be pleasing to those who are doing their best to actively help the planet, and will feel rewarded financially in the future for their continued efforts.

However, that doesn’t mean owners of homes with a low energy performance certificate rating have to miss out on the green mortgage scheme – lenders can offer green mortgages on older homes too. By funding energy efficient improvements that increase a property’s energy efficiency ratings, owners may be able to switch to a ‘green’ mortgage when they remortgage.

As The Times says: “The Climate Change Committee, the Government’s official advisory body, has recommended that all homes on the market should have an energy efficiency rating of C or above by 2028… mortgage lenders are being encouraged to reward homeowners with energy-efficient properties.”

If you’re interested in green mortgages, one of our experienced mortgage advisors will be able to guide you through the process. At Charles Cameron & Associates, we care about our clients, and the planet, our professional friendly advisers are on hand to support you and can help you explore all of your options.

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