Homebuyers and landlords could benefit from cheaper mortgage rates and cashback incentives by taking out a 'green' mortgage.
Green mortgages are becoming increasingly popular, with lenders beginning to turn their attention to landlords ahead of new energy rules being introduced in the private rented sector.
Here, we explain how green mortgages work and offer advice on how you can qualify for a better rate when buying a home or making energy-efficient improvements.
Green mortgages are home loans that offer cheaper rates to borrowers who purchase a property that meets certain energy-efficiency standards.
Green mortgages have become more readily available over the last year, as banks undertake a drive to make their loan books more sustainable.
Recent research by Defaqto found that the number of green mortgages on the market increased by a fifth between October 2021 and April 2022, led by a big uptick in the number of green buy-to-let deals.
Green mortgages were once a niche proposition, but they're now available from some of the UK's biggest mortgage lenders, including Halifax, Barclays and NatWest.
Rates on green mortgages are often cheaper than standard deals, but the savings aren't huge.
NatWest and Royal Bank of Scotland (RBS) currently offer the cheapest green mortgages on the market. Their two and five-year fixes are both available with a 0.1% reduction on their standard rates.
Both of these deals compare favourably to standard mortgages. The two-year fix at 60% loan-to-value is priced at 2.72%, making it the third cheapest mortgage on the market. The five-year fix at 2.73%, meanwhile, is cheaper than any other equivalent deal .
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Defaqto's research found that there are now nearly 300 'green' buy-to-let mortgages on the market, compared to just 85 last October.
This rise has been driven by upcoming energy changes in the private rented sector. By 2025, landlords will need to ensure their properties have EPC ratings of between A and C at the start of a new tenancy. These rules will be extended to existing tenancies by 2028.
The new rules have resulted in some landlords shifting their focus towards investing in energy-efficient properties. The specialist lender Paragon Bank reported a 38% increase in the amount it lent on properties with EPCs between A and C in the six months to April 2022.
As with the residential market, green buy-to-let mortgages only offer small savings on standard rates, but at a time when finances are stretched, they could still be worthwhile.
These are standard mortgages that offer a cashback incentive for people buying an energy-efficient home. There are several examples of this types of deal:
These deals allow existing homeowners to get better rates or cashback when they borrow additional money to make energy-efficient home improvements:
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As we mentioned earlier, lenders generally base green mortgage eligibility on energy performance certificate (EPC) scores. EPCs grade the energy performance of your property.
They provide a current and potential score out of 100. The score is used to give a grade of between A and G - for example an A rating requires a score of 92 or higher, while a B rating requires 81-91.
EPC ratings last 10 years, and an up-to-date EPC must be provided when properties are marketed for sale.
There are many short and long-term measures you can take to improve a property's EPC. The EPC certificate will make general recommendations to improve your home's energy efficiency and reduce your energy bills.
Other energy-efficient improvements often recommended on EPCs include: