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Green mortgages

A green mortgage is a mortgage that offers buyers or owners of energy efficient homes in the UK, favourable terms for this choice of property

What are green mortgages in the UK?

A green mortgage is a mortgage that offers buyers or owners of energy efficient homes in the UK, favourable terms for this choice of property - this can be by way of lenders offering lower rates of interest and/or cashback on green mortgages.

Some mortgage deals for green mortgages are restricted to people buying a new-build property, and some lenders offer their existing mortgage customers additional borrowing at discounted rates to pay for green home improvements and increasing the home's energy efficiency, such as replacing draughty windows, upgrading an outdated heating system or adding solar panels.

The lending criteria for a green mortgage will vary with lenders, so it is important to speak to your adviser at London FS to ensure you have the right deal based on your requirements.

Why Green Mortgages?

For mortgage lenders offering green mortgages, this is about reducing risk, and they feel energy efficient homes are a lower risk because:

1. The greener the property, household spending should be reduced due to lower energy bills and utility bills, meaning the borrower is in a better financial position as they will have more disposable income and will save money.

2. Green properties are thought to have an increased value – known as ‘green value’, compared to an equivalent home without any green credentials.  

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Are you eligible for a Green Mortgage?

When looking at properties to see if they would qualify for a green mortgage, the key factor is the rating on the energy performance certificate - EPC

An EPC is required whenever a property is built, sold or rented. It calculates a property's energy efficiency rating from A (most efficient) to G (least efficient).

Eligibility for green mortgage deals is linked to the property’s EPC rating – typically it will need to be A or B.

However, if a property has not been sold or rented out for a long time they may not have one, or it may have expired and a up to date EPC may need to be done.

You can check if a property has an energy performance certificate- EPC and the rating using the below government etc register link:

https://www.gov.uk/find-energy-certificate

Each lender will have its own terms and conditions for green mortgages and it is likely that your property will need to meet a minimum level of energy efficiency.

For example, for the Barclays green home mortgage, there is a requirement of the energy efficiency to be 81 or above or an Energy Performance Certificate (EPC) at bands A or B. NatWest requires an EPC rating at A or B.

With Nationwide Building Society the minimum energy efficiency rating is 86.

The Ecology Building Society bases its whole ethos around supporting ecological building practices and sustainable communities. It offers a discount on the mortgage interest rate based on the improvement made in your property’s EPC rating. This is available for renovations, conversions and new self-build properties as well as purchasing a new-build home. This discount is then applied for the full term of your mortgage.

Those purchasing a new-build should receive a Predicted Energy Assessment to provide a predicted energy rating, which may be required to confirm eligibility for a green mortgage.

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Energy Performance Certificate - What is it?

Much like the multi-coloured sticker on new appliances, Energy Performance Certificates (EPCs) tell you how energy efficient a building is and give it a rating from A (very efficient) to G (inefficient).

They will tell you how costly it will be to heat and light your home, and what its carbon dioxide emissions are likely to be.

An EPC also includes information on what the energy efficiency could be if you made the recommended improvements and highlights cost effective ways to achieve a better rating and making your property more energy efficient.

Even if you rent your home, you could still implement some improvements noted on the EPC, such as switching to more energy efficient light bulbs.

EPCs are valid for 10 years from the date of issue.

Green Mortgage Rewards

Currently, lenders who offer green mortgages reward borrowers with preferential mortgage rates or cashback.

To qualify for a green mortgage product, the property you are buying or remortgaging must have an EPC rating of A or B.

Some lenders also offer their existing mortgage customers a discounted “green additional borrowing” rate if they are carrying out energy-efficient home improvements on existing properties, to increase the EPC ratings.

When it comes to buy-to-let mortgages, Landlords have a greater incentive to be green due to new regulations being introduced from 2025, with rented properties needing to have an energy efficiency rating of C or above. The change is to be phased in, starting with new tenancies of six months or more, followed by all tenancies from 2028.

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