Green Mortgages

It’s no secret that the UK is in need of greener homes. Whether it’s to help with spiralling energy bills or to meet wider climate change targets, finding ways to make our properties more energy efficient is a hot topic right now. But did you know that getting a greener home could also save you money on your mortgage?

A Green Mortgage is designed to do just that. It's a type of mortgage that offers preferential terms to anyone buying an energy-efficient property, building one from scratch, or making eco-friendly improvements to their current home. The incentives typically come in the form of a lower interest rate or cashback.

In this guide, we'll walk you through everything you need to know about Green Mortgages: how they work, why they’re becoming more popular, and what you need to do to secure one.

What Is a Green Mortgage?

A Green Mortgage is a home loan that rewards you for owning a property that meets certain energy efficiency standards. The aim is to encourage people to buy more eco-friendly homes or to invest in making their current homes greener. These mortgages are a win-win: you save money on your loan, and your home becomes more environmentally friendly.

The interest rates on these unique types of mortgages may be lower than a lender's standard rates, or they may offer additional incentives, such as cashback. The idea is that an energy-efficient home is a lower risk for lenders because the property is more likely to hold its value and the borrower has lower utility bills, making it easier for them to manage repayments.

For a new-build property, it's usually the developer who ensures the home is built to a high energy-efficiency standard. For existing homes, a Green Mortgage can be used to fund improvements, with the interest rate being reduced once the works are complete and a new, higher Energy Performance Certificate (EPC) is obtained.

How Do Green Mortgages Work?

A Green Mortgage works just like a standard residential mortgage. You borrow a lump sum from a lender and pay it back in monthly instalments over an agreed term. The difference is the special incentive tied to the property's energy performance.

For most Green Mortgages, the incentive is based on your home's Energy Performance Certificate (EPC) rating. The most common requirement is for the property to have an EPC rating of A or B. If it does, you can use a green mortgage and its associated benefits to fund your purchase. 

Some lenders also offer what's known as "Green Additional Borrowing." This is where you can take out a new loan at a preferential rate to fund energy-saving improvements to your home, such as installing solar panels, a heat pump, or insulation. Once the work is done and your EPC rating improves, the lender may offer you a better rate on your primary mortgage.

Why Are Green Mortgages Necessary?

Green Mortgages are more than just a marketing tool. They're a response to a real need to improve the UK’s housing stock. The majority of properties in the UK are older homes with lower EPC ratings, which means they are less energy-efficient. As a result, they’re more expensive to heat and have a greater impact on the environment.

The government has set ambitious targets to reduce carbon emissions, and homes play a big part in that. Green Mortgages are a way to encourage and finance the necessary home improvements to meet these targets. They also help homeowners directly by lowering their energy bills, which puts more money in their pocket each month and can help with overall mortgage affordability.

For lenders, there's also a financial incentive. A green property is a lower-risk investment. Lower bills mean a borrower is less likely to struggle with their mortgage repayments, and energy-efficient homes are expected to hold their value better in the future.

Why Is an Energy Performance Certificate (EPC) so Important?

An Energy Performance Certificate (EPC) is like a report card for a home. It measures a property's energy efficiency from A (most efficient) to G (least efficient). Every property needs a valid EPC when it’s built, sold, or rented out.

The certificate gives you a clear and easy understanding of how much your new home will cost to run and the costs of any improvements needed to reduce its energy usage. It will also provide you with a current rating, as well as a potential rating if you were to make all the recommended improvements.

For a Green Mortgage, an EPC is crucial. It’s the proof a lender needs to offer you a better deal. Most lenders will require a valid EPC with an A or B rating, which is why a Green Mortgage is most often used for new-build homes, as they are usually constructed with high energy efficiency in mind. 

You can find any property's EPC online by visiting the government register.

Are Green Mortgages Cheaper than Standard Mortgages?

This is a key question, and the answer isn't always a simple yes or no. A Green Mortgage typically offers a lower interest rate or a better incentive than a lender's standard product. However, it might not be the cheapest option on the wider market.

For example, a lender's Green Mortgage might have a rate of 4.1%, while their standard mortgage product has a rate of 4.3%. In this case, the Green Mortgage is cheaper. But another lender who doesn't offer a green product might have a standard mortgage at 3.9%, which would be a more affordable option overall.

This is why it's so important to compare all of your options across the whole market. A good mortgage broker (like us!) will be able to do this for you, so you can weigh up whether the savings from a Green Mortgage are the best option compared to other available deals.

Which Mortgage Lenders Offer Green Mortgages?

The Green Mortgage market is still growing, but more and more lenders are getting on board. Many of the UK’s biggest high street banks and building societies now offer a green product, though their terms and incentives can vary.

Some of the most prominent lenders include:

• Barclays: Offers a lower rate for new-build homes with an EPC rating of A or B.

• Halifax: Provides cashback for properties with an EPC rating of A or B.

• Nationwide: Offers a 0% interest Green Additional Borrowing mortgage for energy-saving home improvements.

• NatWest: Provides a reduced rate for homes with an EPC rating of A or B.

These are just a few examples. As the market continues to grow, you can expect to see more lenders offering Green Mortgages with different incentives. This is where an experienced green mortgage broker can make all the difference - they’ll be able to help you identify the most competitive terms available, saving you time and, potentially, some money, too. 

What Are the Eligibility Criteria for Green Mortgages?

The eligibility criteria for a Green Mortgage typically combine standard lending rules with specific requirements related to energy efficiency. Here are the key things lenders will look for:

• EPC Rating: The property must have a valid EPC with a rating of A or B. For new builds, a Predicted Energy Assessment (PEA) is usually acceptable.

• Property Type: Some green mortgage products are only available for new builds, while others can be used for existing homes that are being improved.

• Financial Situation: You'll still need to meet the lender's standard affordability criteria, including a solid credit score and a stable income.

• Deposit: Most Green Mortgages are available up to a maximum of 85% LTV, which means you'll need at least a 15% deposit.

• Lending Purpose: The mortgage must be for a residential property that you intend to live in. Buy-to-let properties may have different criteria or a separate green mortgage product altogether.

Can You Get a Green Buy-to-Let Mortgage?

Yes, it's possible. As with their residential counterparts, green buy-to-let mortgages offer incentives to landlords who own or are purchasing an energy-efficient rental property. The rules are similar but are tailored to the buy-to-let market.

Lenders will want to see that the rental property has a high EPC rating, usually an A or B. The affordability assessment will still be based on the rental income. You'll typically need a larger deposit (20-25% is standard for buy-to-let) and meet the lender's personal income requirements.

Some lenders even offer specialised products for landlords seeking to enhance the energy efficiency of their existing properties. The incentives can include lower interest rates, cashback, or a free energy audit to help you make the most effective improvements.

Are Green Mortgages a Good Idea?

There are several clear benefits to obtaining a Green Mortgage, but, as with any home loan, it's essential to weigh up the pros and cons before you make a final decision.

Why They’re a Great Idea:

• You could get a cheaper interest rate than a standard deal.

• Lower energy bills can help you manage your monthly repayments.

• It encourages and helps you fund eco-friendly home improvements.

• The property is likely to hold its value better in the long run.

• You’ll have a more comfortable, warmer home and a lower carbon footprint.

What to Be Aware Of:

• It might not be the cheapest deal on the wider mortgage market.

• The eligibility criteria can be strict, with most requiring a top-tier EPC rating.

• You might not be able to get a Green Mortgage on an older property if it's not possible to achieve the required EPC rating.

• The market is still developing, so the choice of lenders and deals can be limited.

• A bigger deposit may be required, as most Green Mortgages are limited to a maximum of 85% LTV.

Why Pick Picnic for Your Green Mortgage?

Green mortgages are still relatively rare, with a limited number of lenders offering them. Finding the best terms available on your own could be a challenging and time-consuming process. Having an experienced mortgage broker on your side - like us! - makes things much easier and more efficient. 

Here’s how we can help:

• Finding you the best green mortgage deals: Our mortgage team will already know which lenders are currently offering the most competitive rates for this type of home loan. They can compare the current green mortgage deals available to find the one that’s right for your circumstances, including exclusive offers not generally available elsewhere. 

• Your mortgage, made simple from start to finish. Our online portal allows you to track your mortgage application step-by-step, sign and upload documents in seconds, and contact your mortgage team at any time. No back-and-forth emails. No printing. No guesswork. Everything you need, all in one place, so you can stay organised and in control of your mortgage journey. 

• Making mortgages possible, whatever the circumstances: Our team of advisors have a clear understanding of the eligibility criteria used by each lender and will identify the one that's best placed to help. Our sister brand, Haysto, has become the No.1 destination for customers who've been turned away elsewhere. For anyone with a complex income or adverse credit record - we’ve got your back!