Green mortgages are mortgages that are only made available to people buying homes that meet certain sustainability criteria. These mortgages generally offer more attractive rates than comparable regular mortgages. Here is a quick guide to what you need to know about them.
Each lender sets its own criteria. As a rule of thumb, however, the property would need to have high energy efficiency to qualify. You should expect to have to reach a minimum of a B (81). Some lenders may require a top-end B (86-91) if not an A (92+). The property also needs to meet all the standard criteria for a mortgage as does the applicant.
The UK has committed to going carbon-neutral by 2050. This initiative is supported by politicians of all parties and from all parts of the UK. It’s therefore highly unlikely to change if there is a change of government. Making the UK’s homes more energy efficient is key to achieving this target. The government is therefore looking at ways to make this happen.
It has already directly targeted residential landlords by introducing minimum energy efficiency standards on properties let to residential tenants. The costs of buying suitable property and/or upgrading existing property will, ultimately, be passed on to tenants. They will, however, be passed on incrementally. The landlord will pay the upfront costs.
Improving the energy efficiency of owner-occupied property will, however, require a different approach. Essentially it is likely to require carrots rather than sticks. The government is working on this itself. It’s also sending out strong signals to the mortgage industry that it would like to see them on board with this.
For example, the Department for Business, Energy and Industrial Strategy has already proposed creating and publishing “lenders’ league tables” showing who has the most sustainable portfolios. As yet, it’s unclear if this will be adopted but it does highlight what the government could do. It, therefore, makes sense for lenders to preempt it themselves.
It means that green mortgages are likely to move into the mainstream. As a part of this, they will change from being largely targeted at the investment property market and start to target the residential property market. In fact, over time, the residential property market is likely to become the bigger market by far due to sheer weight of numbers.
This could have very interesting implications for buyers regardless of whether they are moving or remortgaging. Firstly, the availability of green mortgages could start to influence house prices. Buyers could be prepared to pay a premium for energy-efficient homes knowing that they will save on their mortgages as well as their energy bills.
The flip side of this is that homes with lower energy efficiency may fetch lower prices unless they have something else to recommend them. In other words, homes that are simply outdated may become challenging to sell. Homes with genuine period charm, by contrast, are still likely to attract buyers. With that said, improving their energy efficiency can make them even more appealing.
For those who are already settled, improving a home’s energy efficiency could lead to more attractive deals when remortgaging. This could tip the scales in favour of home improvements that otherwise might not be quite justified by the savings in energy costs.
At present, the criteria for green mortgages tend to be based on a property’s Energy Performance Certificate. You should therefore make sure that any home improvements you make will boost that. Do your research carefully and, if necessary, consult with a professional before you commit.
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