Green mortgages are one of the many “green finance” weapons in the battle against climate change. They are designed to reward property owners through preferential mortgage terms in exchange for commitments to environmental efficiencies.
In this blog, we look at green mortgages, how they can benefit you and how you can apply.
What is a green mortgage?
If a property meets certain environmental standards or the borrower commits to improving the property’s environmental performance, borrowers can unlock a “green mortgage”.
Green mortgages are growing in popularity. 62% of landlords expressed an interest in mortgages that reward borrowers with better rates for making their properties energy efficient and 50% of landlords polled under 45 said they were interested in green mortgages.
What are the benefits of a green mortgage?
The main benefit of a green mortgage is that property owners will be offered lower interest rates and/or a higher borrowing amount on their debt, thereby unlocking significant cost efficiencies and savings in repayments.
Other benefits include decreasing energy costs for residents and reducing carbon emissions from inefficient housing (which account for 14% of total UK emissions).
For landlords, green mortgages seem attractive particularly as the UK Government considers raising minimum energy efficiencies to EPC Band C by 2025 for new tenancies and 2028 for existing tenancies.
How can I get a green mortgage?
Green mortgage products are wide in scope and each lender will have different eligibility requirements.
For prospective homeowners to qualify for a green mortgage, some current green mortgages require the buyer to:
- buy a home that has a valid Energy Performance Certificate (EPC) rating of A or B; or
- buy a newbuild from a builder or a developer that has an Predicted Energy Assessment (PEA) of A or B.
For landlords to qualify for a green mortgage, some current green mortgages require the buyer to:
- have a property for more than 5 years and have an EPC rating of A to C.
Remember that as a landlord, you can only let properties that meet the Minimum Energy Efficiency Standards and that you must provide your tenants with a valid and updated EPC (amongst other things).
Irrespective of what kind of buyer you are, before you select a mortgage product, you may wish to consider speaking to a mortgage adviser to discuss what options are best for you.Landlords should particularly consider key questions when buying a property to let out, other points to consider before buying a property to let out and the tax implications of buy to let properties.