Changes to green mortgages are being considered by the UK government to mean lenders will need to disclose the energy performance of the homes they lend on in England and Wales. But what are the implications for home buyers and home sellers?
In the Government’s Heat and Buildings Strategy published in autumn 2021, the government reiterated proposals that it consulted on earlier this year, which would require mortgage lenders to disclose the energy performance of their mortgage portfolios.
It proposed setting ‘voluntary improvement targets’ for lenders to reach an average of Energy Performance Certificate band C across their mortgage portfolios by 2030. And this target may be made mandatory if ‘insufficient progress’ is made, it added.
As it stands, an energy performance certificate is required when a home is built, rented or sold. The most energy-efficient homes are rated A and the least efficient rated G. Currently, only 40% of houses have a C rating or higher.
And in order to help reach the target, the government wants more lenders to offer green mortgages. These incentivise borrowers to make energy efficient upgrades to their homes. The plan is part of the wider government strategy to make sure the UK meets its target to reduce emissions by 70% on 1990 levels by the end of the decade, on a path to net zero by 2050.
What are green mortgages?
Green mortgages reward you for saving energy on your property. Green mortgages already exist with lenders including Barclays, Natwest, Virgin Money, and Nationwide.
Some lenders will give you lower interest rates or cashback and larger loans if your home meets a minimum energy-efficiency level. Other lenders will offer lower rates or cashback if you make energy-efficiency improvements. Or if you take out additional borrowing to pay for measures to improve your home’s energy efficiency.
How will the new proposals for green mortgages work?
Ministers hope that by setting targets for lenders, that they in turn will incentivise homeowners to undertake green improvements when they move into a new home.
However, concerns have been raised that this will discourage banks from lending to less energy-efficient homes. And that this could have a negative impact on some homeowners and buyers, including:
- Increased costs for buyers: There are concerns buyers may struggle to get a mortgage on homes with a low energy-efficiency rating unless they commit to spending thousands of pounds on home improvements. And that this may hit first time buyers particularly hard.
- Homes may become harder to sell and lose value: Concerns have also been raised for some homeowners who want to sell too. Timothy Douglas of Propertymark, which represents estate agents across the UK, said, ‘Incentivising green improvements to properties via lending creates risks of trapping homeowners with older properties, those who live in rural areas, listed buildings or conservation areas, making their homes difficult to sell and therefore reducing the value.’ Propertymark said that people living in older properties could be left with homes they are unable to sell if buyers weren’t able to get a mortgage on them due to their lower energy efficiencies.
- It could create mortgage prisoners: Homeowners may find they’re forced to stay with their lender and unable to shop around for cheaper mortgage deals if lenders won’t offer mortgages on homes that are less energy efficient
- It will hit the worst off: There are also fears that discouraging banks from having less energy efficient homes in their portfolios would disadvantage poorer customers, who are less financially able to improve their property’s rating.
What are the advantages of green mortgages?
Here are some advantages to consider:
- You may get a cheaper rate.
- If you take out a regular mortgage you may still be eligible for cashback if your home meets certain energy efficiency conditions set by a lender.
- By either buying an energy-efficient home to qualify for a green mortgage or by making improvements now, whether you do this by using a green mortgage or not, you may be future-proofing your property in case it’s harder to get a mortgage in the future for homes with low EPC ratings.
- If you have a house with a high EPC rating, lenders may offer more flexibility when it comes to affordability because they will know your energy bills are likely to be lower. And having lower energy bills also has a financial benefit too.
Are green mortgages cheaper?
There is no simple answer to this. In some cases, if you already own a house with a high EPC rating you may find a green mortgage is the best option for you. Or it may be that you can get a better rate with a traditional mortgage with a different lender. And if you want to borrow more to undertake improvements to make your home more energy efficient, your best bet may be a green mortgage. But depending on what else is available, it might not be the cheapest option for you.
So you’ll need to shop around. It’s a good idea to speak to a broker. They’ll be able to search through all the options for you and find the best mortgage for your needs, whether it’s a green mortgage or not.
6 Ways To Make Your Home More Energy Efficient
There are a number of different ways a home can become more energy efficient, with the following being among the most popular to implement.
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Upgrade your boiler
As much as 50% of a household energy bill is for heating the home and the water. Modern boilers are “condensing”, which makes them more efficient as they re-use a lot of the heat that would otherwise be lost with an older boiler.
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Install a ground source or air source heat pump
Heat pumps absorb heat from the environment (either the air or the ground depending on which type of pump you choose) and transfer it to a fluid before compressing it and using it to heat the home or water. Buying and installing a heat pump is considerably more expensive than traditional heating methods, though the operational savings quickly start to repay the investment.
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Improve your loft, floor, and (cavity) wall insulation
As much as 25% of your heat can be lost via the roof of an uninsulated home, so this can be one of the best (and most cost-effective) ways of improving the energy efficiency of your home.
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Install double (or triple) glazing
While double glazing can reduce heat loss by around 30% in comparison to single glazing, triple glazing can be as much as 40% more effective than double glazing. While triple glazing can be as much as 50% more expensive than double glazing, the lifetime energy savings should make it a cost effective improvement.
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Use a smart energy meter
While smart meters don’t automatically save energy, they provide households with information surrounding their energy usage, allowing them to take appropriate action. Some studies show that as much as 85% of households have taken steps to save energy since having a smart meter installed.
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Use energy efficient lighting
The cost of replacing a 50W halogen bulb with an energy efficient LED equivalent varies between £3 to £12. While the initial investment can quickly add up, each bulb can save as much as £75 over the lifetime, quickly making them a cost effective solution.
Green Mortgages For Energy Efficient Buy-To-Let Properties
A let property must currently, by law, have an EPC rating of E or above. By 2025, newly let properties will need to have an EPC rating of C or above. Many properties fall below this, so landlords should be taking measures to increase the energy efficiency of their property portfolio now.
Several lenders are offering discounted rates to properties with an EPC rating of A or B. The rates are, on average, 0.1% cheaper than their standard rates. Again, this isn’t to say that they are cheaper than the rest of the market (including lenders which do not offer green mortgage incentives).
Buy-To-Let green mortgages are available for remortgages and purchases on property held in both personal and limited company names.
If you’re looking to sell your home or are interested in your home’s energy rating, then you can simply get in touch with us. Visit Fortess Homes for more information.
