How a “green” home could cut mortgage costs

Energy efficient home owners could save hundreds of pounds by opting for a green mortgage – available from a growing number of lenders. Borrowers planning to improve the environmental performance of their home can also qualify.

Green mortgages are special conditions that are only available for properties with high energy efficiency. They are designed to create incentives to buy an efficient house or to renovate a draughty house.

There are now more than 25 green mortgage loans available – from larger providers like Virgin Money, Barclays and Nationwide, and smaller building societies like Dudley and Saffron.

The savings can be significant. For example, Barclays offers a green mortgage with a ten percent deposit that is fixed at 3.15 percent per year for five years. The corresponding standard mortgage has an annual interest rate of 3.25 percent. The borrower would save £ 719 on a £ 150,000 loan over the five years of the transaction.

The Barclays Green Mortgage is competitive when compared to other non-green options on the market. Atom Bank, for example, offers one of the best five-year contracts with 3.19 percent.

While the atomic bank deal usually requires a deposit of ten percent, buyers of a new home are only granted loans if they have a deposit of 15 percent or 20 percent for buyers of a new home.

Nationwide offers cashback to energy efficient home buyers on all of their mortgages. Buyers of homes with a top rating for efficiency will get £ 500 while those with a very good rating will get £ 250.

Homeowners with poor energy efficiency ratings could also get a green mortgage if they commit to improvements.

For example, specialist lender Kensington has an eKo cashback mortgage that pays £ 1,000 to borrowers looking to improve the energy efficiency of their home. The Saffron Building Society offers a Retro Fit Mortgage that offers a rate cut if you can improve your home’s efficiency rating within six months of taking the loan.

Some lenders also offer additional credit at a competitive price for anyone looking to fund environmentally friendly home improvements. Nationwide’s Green Additional Borrowing offers financing of up to £ 25,000 at a rate of 0.75 percent per annum.

The loan can be used to finance green projects such as installing solar panels, improving insulation, modernizing a boiler or installing a charging station for electric cars. The interest rate compares favorably to a personal loan which would cost at least 2.8 percent per year on a £ 25,000 loan over three years.

David Hollingsworth, mortgage broker at London & Country, says green mortgages are available to both homebuyers and buy-to-let investors and can be particularly beneficial for new home buyers, who typically have high efficiency ratings.

However, he cautions against choosing mortgages based solely on their green credentials, as there may be better interest rates elsewhere.

“The credit market is so competitive right now that it is very difficult for green mortgages to beat the rest,” he says. “But we need sensible and affordable options to help people buy energy efficient homes or improve their homes. Over time, green mortgages should only get more competitive. ‘

Certainly, the energy efficiency of UK homes needs to be improved quickly if the government is to meet its ambitious target of net zero carbon emissions by 2050.

Heating homes accounts for around 14 percent of the UK’s carbon emissions and two-thirds of the country’s homes have poor energy efficiency ratings.

The Department for Business, Energy and Industrial Strategy says lenders can play a key role in motivating borrowers to both buy greener homes and improve the energy efficiency of existing homes.

However, Aaron Strutt, director of mortgage broker Trinity Financial, believes that green mortgages will only be successful if they offer homeowners the best value.

“We get people asking us about ethical loans from time to time, but we don’t get people asking us about green mortgages,” he says. “People always want the cheapest interest rate, the best loan amount, and the lowest agency fees.”