You may have heard of fixed-rate mortgages and tracker mortgages but do you know what a green mortgage is?
Green mortgages are a lucrative new incentive that encourages homebuyers to consider the environmental impact of their homes.
It may be the right time to consider a green mortgage since the UK is making big moves toward its net zero goal.
What is a green mortgage?
At its most basic, a green mortgage rewards you for buying or owning an energy-efficient home.
The same rules will apply if you make improvements or renovate your home to make it more energy efficient.
A green mortgage offers a buyer preferential terms if they can demonstrate the property they’re looking at meets certain environmental standards.
A property with a high energy efficiency rating is likely to qualify for a lower interest rate or a cash-back incentive if the home is energy-efficient.
A lender may even increase the loan amount, which could open doors to different locations or property types for buyers.
Some standard mortgages can also become green mortgages, but only if the homeowner commits to making energy-efficient improvements.
While some green mortgages can be more expensive, the main point of them is to incentivise homeowners to be greener.
Why did they start?
Because of the Government’s pledge to reach net zero carbon emissions by 2050, it is expected that all social housing in the UK will have an Energy Performance Certificate rating of at least C by 2035.
While it may seem like individual homes don’t make a difference, UK households are responsible for around 20% of the country’s carbon emissions.
Should you apply for a green mortgage?
Applying for a green mortgage may not seem that different from a regular mortgage at face value, but it’s important to consider the many benefits of a green mortgage before making any decisions.
Lower interest rates
Because lenders will see the long-term value in green mortgages, you’re likely to receive lower interest rates.
Less interest means lower monthly repayments. This means you’d be saving more regularly with a green mortgage than you would without one.
Cheaper energy bills
This is especially poignant right now, with energy bills skyrocketing and the cost of living crisis in full swing.
A more energy-efficient home takes less power to heat and keep warm, and even light fittings are more energy efficient.
This all comes together to save you more money and keep you more secure when the economy is shifting.
Greater property value
As we edge closer to the government’s net zero targets, eco-friendly homes will steadily become more and more desirable and sought after.
What’s the result of this climb? They’ll also increase in value. Starting now and making eco-friendly changes can set your investments up for future growth.
Holding their value
During times of economic uncertainty, a green mortgage can hold its value more effectively than other mortgages of the same value.
This is largely because of the above factors, but it’s an important point to note.
Not only are you saving money each month on energy bills, but your investment is also more stable and secure than ever before.
Are you eligible?
Your eligibility depends on your EPC rating.
If it’s below an A or B you won’t be eligible for a green mortgage just yet.
However, if you can show you’re ready to make improvements and renovations to your home to make it more energy efficient, then lenders may be willing to open the criteria to you.
Currently, most EPC rules focus on landlords and rental properties but there is talk of EPC ratings being factored in to how much a home occupier pays on stamp duty.
You can also remortgage onto a green mortgage if your property has a high enough EPC rating.
You will, of course, still need to meet the standard mortgage lending criteria set by your lender.
Remortgaging is also an option if you’d like to free some equity to make these improvements.
Plenty of lenders and institutions are ready to offer green mortgages, you just need to know where to look.
Talk to an adviser
If you’re interested in a green mortgage but don’t know where to start, get in touch with an adviser at The Property Centre.
We work with the award-winning Mortgage Advice Bureau and have a professional mortgage adviser in each of our offices.
