Those with energy-efficient homes will soon be able to borrow up to £12,000 more on their mortgage from one lender – as data shows the number of green mortgages available has increased fivefold since April.
Data from real estate agent Property Master for This is Money shows that the number of green mortgages, both for regular homes and for sale for rent, has increased from just 78 products in April to 400 today.
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Green mortgages reward borrowers for having a good energy performance certificate rating by lending them more money based on their income, lowering costs, or giving them a better interest rate.
Go green: green mortgages reward people with an energy-efficient home
In the final step to incentivize buying greener homes or retrofitting existing homes with green improvements, Monmouthshire Building Society is “recalibrating” its affordability calculator so people with EPC A or B rated homes can borrow more than those with a D , E, F or G.
The average EPC rating for houses on the books is a D.
Monmouthshire is currently testing the new concept at two new construction sites in Wales, telling This is Money that those in the top two bands could borrow up to £12,000 more compared to those in underperforming properties.
Most lenders use government data on average utility bills to account for a home’s operating costs, but this generic data doesn’t always accurately reflect a home’s true operating costs.
Owning a more efficient home costs less, and theoretically leaves the owner-occupier with more disposable income that can be used for higher mortgage payments.
Some mortgage experts say that this way of borrowing is much too late.
“From a borrowing perspective, it’s only fair that a customer who buys a property that costs less each month should be rewarded when assessing affordability,” said Matt Coulson, principal at brokerage firm Heron Financial.
“If they don’t have to put so much of their earnings to pay utility bills, they should have more left over for their repayments.”
Modifications such as solar panels can increase the chances of earning an Energy Performance Certificate of C or higher and potentially qualifying for a green mortgage
Most existing green mortgages require the borrower to search for and apply for a specific ‘green’ product.
If Monmouthshire rolls out the new calculator for all its lending, it could be the first to factor in a low EPC rating, regardless of which product the customer has chosen.
Monmouthshire made the decision after being involved in Appraisals and Lending, Energy Reduction or ‘Valuer;’ a group of real estate organizations, including Rightmove and the Royal Institute of Chartered Surveyors, researching ways to tie energy efficiency to mortgages.
Graham Sumsion, credit manager at Monmouthshire Building Society, says: ‘The problem we face is that energy efficient new build homes are more expensive to build and therefore sell for more, shrinking the market for them. because people cannot get a large enough mortgage.
“But lenders may want to consider borrowing more against these properties, as buyers’ bills will be low.”
Property Master’s data shows that the 400 green products are offered by 19 lenders, including most of the well-known names.
Their motives for doing so are not entirely altruistic, however, as policy changes are on the way that will put pressure on individuals and businesses alike to reduce their environmental impact.
Angus Stewart, chief executive of Property Master, said: “Basically, what we’re seeing here is lenders getting in a position to meet the requirements of the government’s net-zero policy, which is a commitment for all domestic properties to have a EPC of a C to reach. or higher by 2035.
‘As a result, mortgage lenders are expected to ensure that the average energy performance level of their domestic portfolios is at least EPC C by the end of 2030.’
Is it enough to make homeowners green?
Under pressure to balance their books, more lenders are likely to offer incentives to get people with good EPC ratings on board.
That is good news for those who already own energy-efficient homes.
Borrowers are unlikely to opt for “green” properties just because they have access to slightly lower interest rates
Mortgage broker Gerard Boon
But with the price of eco-friendly new construction and the cost of retrofitting things like air-to-water heat pumps still very high, some experts struggle to believe that a slightly higher mortgage or marginally better interest rate will be enough to satisfy homeowners. convince them to buy a greener house or carry out major renovations.
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“Borrowers are unlikely to choose ‘green’ properties just because they have access to slightly lower interest rates or slightly higher affordability.”
However, it can have more impact when combined with other motivating factors, such as cheaper bills and not needing renovations.
What about those who can’t afford to upgrade their home?
Ultimately, the supply of green homes is still quite limited, and there are concerns that those in older homes will be unfairly penalized if lenders continue to offer preferential treatment.
Katie Brain, mortgage expert at Defaqto: ‘On the one hand, this could mean that borrowers who buy an energy-efficient home can borrow more, which can be attractive when real estate prices are high.
“But what about those who can’t afford the price of newer, more energy-efficient homes? This could punish people.’
Incentives aside, the cost of purchasing an energy-efficient home will be too high for some. Prices are often higher than older properties and renovation can be expensive too
Monmouth says it is keen to help people with the cost of renovating their properties by providing further advance loans secured on their homes at a favorable rate.
“We especially want to support our members in buying homes on zero sites, but we also want to help existing homeowners improve their properties,” says Sumsion.
“As part of the pilot, we looked at customers’ homes and created a path for them to decarbonize their homes.”
While this may help some people on their way to becoming more energy efficient, getting a loan is still a big question when the exact cost benefits are unclear.
Although it is growing rapidly, the green mortgage industry is still in its infancy and little information is available so far about public interest in such products.
There may be a big push from the banks, but whether the average homeowner will bite remains to be seen.
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