We all know the importance of the environment, and that we need to work to protect it. We are all being forced to be more aware of the cost of energy.
Eco, or ‘green’ mortgages were developed to help, with preferential rates for energy efficient properties.
But could an eco-mortgage also be a way to avoid the increasing cost of home loans?
At Continuum, as experts in mortgages, we are looking at what an eco-mortgage is, and what it might be able to offer you.
What exactly is a green mortgage?
A green mortgage offers buyers of energy-efficient homes more competitive mortgages rates. The exact terms will vary with providers, but most lenders offer a lower rate of interest or cashback for properties that meet their criteria.
Barclays launched the first green residential mortgage in 2018, and in July 2020 Just Group launched the first green lifetime mortgage. Many building societies and high street banks now offer green mortgages, which include trackers and fixed rate deals, much like the rest of the mortgage market.
What makes a home an eco-home?
An eco-home is a property specifically designed to minimise its impact on the environment.
Compared with a standard home they have reduced energy needs. They may be powered by renewable energy sources and feature a high level of insulation. They may have features like triple-glazed windows, and mechanical ventilation systems with heat recovery They may be built with sustainable materials. Some homeowners look at the full lifecycle of all materials used and even how they can carbon offset the build itself.
Some eco homes can even be partially covered with soil and look very little like a conventional house. But you don’t have to go that far to have an eco-friendly property. As long as your home meets the required standards you could be eligible – and some lenders will even provide initial loans to help you get your existing property up to standard.
Anything you can do to boost your home’s green credentials can make a difference, to the environment – and also have an impact on the kind of mortgage you’ll be offered.
How do you qualify for a green mortgage?
The eco mortgage sector is still developing, and each lender will have its own terms and conditions and maximum loan-to-values for green mortgages.
Some are based on Energy Performance Certificates or EPCs. These are needed whenever a property is built, sold or rented. An EPC contains information about a property’s energy use, typical energy costs and recommendations about how to reduce them. It also gives a property an energy efficiency rating from A (most efficient) to G (least efficient) and is valid for 10 years.
For an eco-mortgage, your property will need to meet a minimum level of energy efficiency. For example, Barclays requires an energy efficiency rating of 81 or above or an EPC in bands A or B. NatWest requests an EPC at A or B. Nationwide Building Society has a minimum efficiency rating of 86.
Those purchasing a new build should receive a Predicted Energy Assessment with a predicted energy rating. Many new developments may look like conventional contemporary homes but meet the performance standards set to qualify as eco homes You can also check if a property has an EPC using the government website.
However, discounts may be appealing, but they are not the only consideration when assessing a mortgage. While most lenders will offer standard mortgages at up to 95% of the property’s value, you may need a larger deposit for an eco-home, with some lenders expecting at least 20-30% of the property’s value upfront.
Could you save with an eco-mortgage?
Getting the mortgage that is most suitable for you and your home is a complicated business, and eco mortgages may be just one of the ways to reduce your costs. At Continuum we can call on mortgages from the entire home loan market – and help you find the solution that is best for you.
Whether or not you are living in or considering buying an eco-home, contact us today.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage products, you should seek independent financial advice before embarking on any course of action.