Green Mortgages and Energy Efficiency

What You Need to Know

Energy efficiency has moved from a nice-to-have to a genuine factor in how properties are bought, sold and mortgaged. Whether that's been driven by rising energy bills, increasing buyer awareness or the government's longer-term targets around housing stock, the result is that a property's EPC rating is now relevant not just to running costs but potentially to the mortgage deal available on it.

What Is a Green Mortgage?

A green mortgage is a mortgage product that offers a preferential rate or cashback to buyers or owners of energy-efficient properties, typically those with an EPC rating of A or B. The logic from a lender's perspective is that an energy-efficient home costs less to run, which in theory makes it easier for the owner to meet their mortgage payments. It also reflects lenders' own commitments around sustainability and the carbon footprint of their mortgage portfolios.

Not all lenders offer green mortgages, and those that do vary in terms of what they offer and the conditions attached. Some provide a slightly lower interest rate on the main mortgage product, others offer cashback on completion, and some combine elements of both.

How EPC Ratings Work

An Energy Performance Certificate rates a property on a scale from A, the most efficient, to G, the least efficient. The certificate is required whenever a property is built, sold or let, and it's valid for ten years. It sets out the current energy efficiency of the property and what rating could be achieved if recommended improvements were made.

Most UK housing stock sits in the C to E range, which means the majority of properties don't currently qualify for green mortgage products. The government has previously set targets around improving the energy efficiency of rented properties, with ongoing discussion about what requirements might eventually apply to owner-occupied homes.

Are Green Mortgages Worth It?

The honest answer is that it depends on the specific product and your circumstances. The rate differential between a green mortgage and a comparable standard product is rarely dramatic, and the most important factor in choosing a mortgage remains whether the overall deal, rate, fees and terms combined, represents the best value for your situation.

Where green mortgages become more interesting is if you're buying a newly built property, which is far more likely to have an A or B rating than older stock, or if you've recently carried out significant energy efficiency improvements to your home and your EPC rating has improved as a result.

Energy Efficiency Improvements and Remortgaging

If you've invested in improvements such as solar panels, a heat pump, new insulation or double glazing, and your property's EPC rating has increased to A or B as a result, it's worth checking whether you'd now qualify for a green mortgage product when you next remortgage. The potential saving over a two or five year fixed term could be meaningful depending on the size of your mortgage.

It's also worth noting that some lenders will fund energy efficiency improvements as part of a remortgage or further advance, which is something worth exploring if you're planning significant work and want to understand your financing options.

The Bigger Picture

Energy efficiency is becoming increasingly embedded in how buyers think about properties, as the shift in search behaviour on portals like Rightmove this summer has shown. Whether you're buying, selling or remortgaging, understanding where your property sits and what improving its rating could mean for both its value and the mortgage options available to you is a worthwhile conversation to have.

If you'd like to talk through green mortgage options or how energy efficiency might affect your remortgage, I'm happy to look at what's available for your situation. Get in touch and we'll take it from there.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Barry, The Mortgage Network - Helping you make confident decisions and plan a mortgage that works for you.