In a world of frequent cold snaps and cost of living woes, homeowners and homebuyers alike are eager to reduce their outgoings, and ‘green mortgages’ could be the key to this.
This emerging category of home loans is aimed at borrowers who either want to buy an eco-friendly home or improve the energy efficiency of an existing one, but are they the best way for people to cut their household costs? Let’s take a closer look…
How green mortgages work
Despite their name, there’s nothing particularly green about these mortgages themselves, although some of the lenders that specialise in them do pride themselves on their environmental consciousness, practises and low carbon footprints.
That said, these mortgages work in the same way as traditional home loans, but are aimed at borrowers who are buying an eco-friendly property or making green home improvements.
In the UK, they are generally reserved for homes with a high energy performance (EPC) score of A or B, or above 80, or properties that will achieve this rating after renovation works funded by the green mortgage provider.
The main incentive to take out a green mortgage is that the borrower is rewarded with either a lower interest rate, a larger loan amount or cashback on completion. This can make them cheaper than some equivalent traditional mortgages, but they aren’t without drawbacks.
Are they the best way for borrowers to save money?
Green mortgages can certainly help householders save money on their mortgage costs if they secure a lower rate by virtue of choosing one. Cashback incentives can also be attractive to today’s borrowers and should be factored into cost comparisons.
It is, however, important to consider that these mortgages are only available to those buying eco properties, which makes them somewhat niche. Those in the market for an eco home should also bear in mind that they will save money on their household bills thanks to greater energy efficiency, regardless of whether they use a green mortgage or a regular one.
With this in mind, one expert has cautioned eco-conscious buyers to consider all of their mortgage options, rather than limit themselves to green deals.
Lee Trett, director and co-founder of financial advice service, Money Helpdesk, says: “The number of lenders offering green mortgages is still relatively small. Although the green options in these lenders’ product ranges will have some of their lowest rates, there could be cheaper options available with other lenders who don’t offer green mortgages.
“It’s important to compare every option available before choosing a mortgage deal. Don’t make the mistake of assuming a green product is your ticket to the lowest rate or the best incentives purely because you are buying an eco property or making home improvements.”
Options can be limited
Green mortgages should certainly be considered for anyone purchasing an eco home, but these niche products must be offset against every alternative before a commitment is made.
Another drawback of these mortgages is the limited customer choice available. Not only are there relatively few lenders offering them, buyers have a heavily restricted choice of property they can buy with them. Many homes some would consider “eco friendly” don’t meet the criteria, as it is largely only new builds that satisfy the lending requirements.
Consumers would be ill advised to change their buying preferences to fit the criteria for a green mortgage when the rates difference with a traditional home loan is often minimal.
Conclusions
Although their impact on the market has been limited so far, green mortgages are worth comparing with the alternatives for anyone buying an eco property that fits the often-stringent criteria for them, but the savings on offer are rarely substantial.
Occasionally, genuinely good deals do become available in lenders’ green ranges. For example, UK provider Nationwide will lend at zero percent interest to borrowers who are making green home improvements, such as the installation of solar panels and air heat sourcing, but these are niche loans for very specific circumstances.
Green mortgages, on the whole, should only be considered after reviewing every available option and comparing them to the alternatives, ideally through a mortgage broker who is fully independent and has access to the entire market.
