Demystifying Green Mortgages
May 2023
In recent years, there has been a noticeable surge in the popularity of green mortgages, driven by the UK’s growing awareness of environmental sustainability and the importance of addressing climate change.
Governments worldwide are setting ambitious targets to reduce greenhouse gas emissions – the UK government itself has set a target to achieve net zero emissions by 2050. This means that future regulations will play a critical role in shaping the growth and implementation of green mortgages.
Given the necessary and profound shift towards greener lifestyles amid the global climate crisis, homeowners and businesses have become increasingly drawn to these products that also incentivise energy efficiency improvements. Current high costs-of-living have also prompted many homeowners to consider a green mortgage to help contribute to lower energy bills in the future.
Yet, there is still a lot of ambiguity and confusion around these products, despite the increasing consumer interest in going green. There is little knowledge among consumers on the green products available, especially for those homeowners who do not own a new build property. The FCA has also commented that despite many green products rewarding clients who have made the eco-friendly decision to purchase a new build home, such products often fail to help reduce the UK’s existing housing stock emissions.
Brokers are in the best possible position to manage customer misconceptions and ensure their clients are aware of the sustainable changes they can make to their property to save money on household bills in the long term. Doing so effectively means providing clarity on the different types of homes these products are applicable to, and, most importantly, on the return on investment clients can expect.
Return on investment
Of course, consumers want green products that do right by the environment, but in the current economic climate they must also see a return on their own investment. Green products will have a meaningful impact for future homeowners, helping them save money on bills moving forward. These products often come with lower interest rates, extended loan terms and energy cost savings to ensure that homeowners are fairly rewarded for their commitment in improving energy efficiency in their home.
Naturally, the amount of energy, and therefore money, saved varies based on the specific changes or improvements that have been made to the property (such as insulation, efficient heating, ventilation etc.), and the return on investment can be calculated through measuring the energy savings over time.
In addition, green features could also increase the sellability of a property. Homes with energy efficient attributes are high in demand, and moving forward we will continue to see a market where buyers may be willing to pay a premium for more sustainable properties.
Green products not just for new builds
As mentioned, green mortgage products are by no means limited to new build homes. There are a host of products available that benefit all homeowners hoping to embark on a journey to improve the existing energy efficiency of their home. It is therefore essential that advisers are able to effectively point homeowners in the right direction of suitable green plans tailored to their own property.
For instance, there are green products that incentivise homeowners with lower EPC ratings to make energy efficient upgrades to retrofit their home. Similarly, energy efficiency improvements such as solar panel installation also provide existing homeowners with the opportunity to capitalise on making eco-friendly changes.
Our Green Further Advance for example, rewards clients who retrofit their property to improve energy efficiency, regardless of whether this is a new build property or not. There are a host of different features that clients can install in their home to qualify, such as insulation improvements (topping-up loft insulation, installing solid/party wall insulation); energy efficient heating (installing a new water tank, modern storage heaters, mechanical ventilation); windows and doors (installing double glazed windows, insulated doors) and energy generation improvements (such as installing solar PV panels or storage batteries).
It is also vital to consider consumer eligibility for these products - the maximum a client can borrow through the Green Further Advance is £25,000 and clients must meet the current lending criteria and be eligible to borrow more with a further advance product. Clients must have also had their mortgage for at least six months and made six consecutive payments.
Brokers therefore have a crucial role to play in advising clients on green mortgages through offering expert guidance on the products available, to ensure they are able to navigate the complexities of eco-friendly financing options.
For more information, why not take a look at our Green product information page.
