Can you save by taking out a green mortgage? – Which? News

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Home buyers can take advantage of lower rates and cashback incentives by taking out a “green” mortgage deal.

Green mortgages are becoming increasingly popular as banks provide more sustainable loans and homebuyers prioritize an eco-friendly lifestyle.

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Here, which one? explains how green mortgages work and gives advice on how to qualify for a cheaper rate or cashback when buying a house or refinancing.

What is a green mortgage?

Green mortgages are mortgage deals that are available to people who buy an eco-friendly home or make it energy efficient home improvements to their property.

These deals have been around for a number of years, but are just now starting to take off – research by Defaqto shows that there are now 26 green mortgages on the market.

Green mortgages usually offer cheaper rates when you buy a home that meets a specific energy standard. For example, lenders will often require that the home obtains an A or B energy performance certificate (EPC).

Green mortgages are usually available at new construction homes, but they may also be available for properties that have been renovated to meet high efficiency standards.

How do green mortgages work?

There are three main types of green mortgages:

  • Offers that provide a lower rate for people who buy energy-efficient homes.
  • Standard mortgages that offer cashback to people who buy energy-efficient homes.
  • Mortgages that offer cheaper rates or cash back when people make green home improvements.

Lower rates for green homes

Barclays and NatWest offer cheaper rates to people who buy an energy-efficient home.

The Barclays Green Home Mortgage is available for new construction homes with EPC ratings of A or B. Buyers can borrow at a loan rate of up to 75%.

The NatWest Green Mortgage is available for new build or existing homes with an A or B rating. It is available up to 85% loan-to-value and comes with £250 cash back.

Green Home Cashback Deals

Nationwide offers cashback on its standard mortgage offer for people who buy an energy-efficient home. The lender’s “Green Reward” is available for new and existing properties with an EPC rating of A or a high B (86 or higher).

The reward is £500 cashback for properties with an ‘A’ rating, or £250 for those with a high ‘B’ rating (86-91). Cashback is available on Nationwide’s entire mortgage offering.

Foundation Home Loans offers a similar deal for landlords purchasing homes rated C or higher. Those who qualify can take advantage of a lower product fee and £750 cash back on the standard mortgage offer.

Cheaper rates or cashback for home improvements

Again, Nationwide is the largest lender to offer these types of deals. The ‘Green Supplemental Loans’ product allows homeowners to apply for an additional £5,000 to £25,000 to make green home improvements at a reduced rate of 0.75%. This deal is available at loan-to-value up to 85%.

Kensington’s EKO cashback mortgage offers £1,000 cashback to people who buy or transfer. To be eligible, borrowers must improve their home’s EPC rating by at least 10 points within 12 months of closing the deal.

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Are the rates better on green mortgages?

If you’re already with a bank that offers green mortgages, some of the above deals can be a great way to access more money to fund home improvements.

But if you want to buy a new build or existing home with an EPC rating of A or B, is it worth taking out a green mortgage or sticking to a standard product?

Defaqto looked at the numbers and found that there are a few two-year fixed-rate green mortgages that are cheaper than the best deal on the standard market.

With a five-year commitment, standard mortgages are currently cheaper, but in almost all cases, green mortgages were among the lowest rates available.

Two year fix

Loan to value Cheapest green mortgage Cheapest standard mortgage Difference
60% 1.13% (£250 cash back) 1.24% The green mortgage is 0.11% cheaper
75% 1.38% (£250 cash back) 1.31% The green mortgage is 0.07% more expensive
80% 2.49% (£250 cash back) 2.65% The green mortgage is 0.16% cheaper
90% 3.62% 3.29% The green mortgage is 0.33% more expensive

Source: Defaqto

Five year fix

Loan to value Cheapest green mortgage Cheapest standard mortgage Difference
60% 1.28% (£250 cash back) 1.27% (£250 cash back) The green mortgage is 0.01% more expensive
75% 1.64% (£250 cash back) 1.53% The green mortgage is 0.11% more expensive
80% 2.82% (£250 cash back) 2.73% The green mortgage is 0.09% more expensive

Source: Defaqto

Will green mortgages become more common?

It is very likely that green mortgages will become more mainstream in the coming years as consumers and lenders become more interested in climate change and sustainability.

The Climate Change Committee (CCC) says 19 million of the 29 million homes in the UK have an EPC rating of less than C. To meet its emissions target by 2050, the CCC says the government must ensure that all homes from 2028 have a rating of at least C.

The Department for Business, Energy and Industrial Strategy (BEIS) says mortgage lenders can play a key role in meeting its government goal.

In a recent report, it said lenders should consider revising their rules to encourage green mortgages and offer additional loans to help homeowners make green improvements.

With this in mind, we can expect more deals like this in the coming years.

What is an EPC rating and how do I improve mine?

As we mentioned earlier, lenders generally base the suitability of green mortgages on: energy performance certificate (EPC) scores.

EPCs assess the energy performance of your home. They give a current and potential score of 100. The score is used to give a grade between A and G – for example, an A rating requires a score of 92 or higher, while a B rating requires 81-91.

EPCs last for 10 years and an up-to-date EPC must be provided when real estate is listed for sale.

There are many short-term and long-term measures you can take to improve a home’s EPC. The EPC certificate will provide some general recommendations to improve the energy efficiency of your home and reduce your energy bill.

If your property does not already have it, attic insulation is a good place to start. It can cost a few hundred pounds, is relatively easy to install and can pay for itself in less than five years.

Other energy-efficient improvements often recommended on EPCs include:

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