Eco Mortgages

What Is a Green Mortgage?

The idea behind green mortgages is to make it more appealing to own or build an eco-friendly property. Along with savings on your energy bills, you can also benefit from better rates of interest and/or cashback. Many lenders now give preferential treatment to borrowers with an energy performance certificate (EPC) or that have made energy efficiency improvements, including Nationwide, Virgin Money, Barclays and NatWest. Each lender has its own criteria for eco mortgages in the UK, but most lenders will offer these types of mortgages on homes with an A,B or C EPC rating. From a lender's perspective, energy-efficient properties as less risky purchases and more likely to hold their value, especially in this era of battling climate change. They also recognise that if a homeowner spends less on energy bills each month, they'll be more likely to meet their mortgage repayments.

What Does an Energy Performance Certificate Show?

An EPC scores a property on its energy efficiency, between A (the best) and G (the worst). The EPC estimates the property's energy consumption and is valid for 10 years. It also shows how to improve a property's rating. You can find EPC ratings for properties in England, Wales and Northern Ireland on the Government's website. Scotland has a separate register.

Is a Green Mortgage the Same as an Eco Mortgage?

In certain cases, the terms eco and green mortgage refer to the same products and are used interchangeably. But it's worth noting that an eco mortgage can also mean a property built using environmentally friendly construction methods and only using sustainable materials. These properties can prove a little more challenging to get a mortgage for than standard-built homes. In this case, you may be offered a specialist mortgage product that the lender refers to as an eco mortgage.

What Are the Drawbacks of a Green Mortgage?

While there are numerous benefits to an eco mortgage, there are a few drawbacks to these homeowner loans that you should keep in mind. For instance, the number of eco mortgages available on the market is relatively limited, giving you fewer options. Green home mortgages can also come at higher rates than non-green mortgages. Meanwhile, eco-friendly renovations and home improvements may mean your property is eligible for an eco mortgage, but the work can be very expensive and time-consuming.

How Can You Qualify for a Green Mortgage?

To qualify for a green home mortgage, most lenders want your property to meet a minimum level of energy efficiency. Eco mortgages should be available to you if you want to purchase a property with at least an EPC C rating. Alternatively, if you’re remortgaging a property, you can show that you have increased the EPC rating to C or higher. You may have achieved this through various green improvements, such as installing insulation or adding solar panels to the property. Eligibility criteria for an eco mortgage vary from provider to provider. Check with your preferred lender to ensure your home is eligible. You can use the government's website to check if a property has an EPC rating.

Like with any mortgage, lenders will also want to make sure that the mortgage is affordable and will look at your credit score, income, expenses and debt to determine your financial situation and affordability.

How Much Deposit Do I Need for an Eco Mortgage?

How much deposit you need for an eco mortgage depends largely on the lender and their specific criteria. Most lenders will also look at whether you’re self-employed, a first-time buyer or an older buyer.

Are Green Mortgages Actually Green?

In most cases, there isn't anything green about the mortgage itself. What makes it a green mortgage are the eco-friendly credentials of the property you live in or are planning to purchase. Eco mortgages work in much the same way as any standard mortgage. You'll borrow a large amount of money from the lender to purchase a property and pay it back in monthly instalments, with interest going to your lender.

Are Green Mortgages Cheaper?

Whether a green mortgage is cheaper will depend on several variables. For example, if you’re looking to buy a house with a high EPC rating, you may find that a green mortgage is the most cost-effective option.

Alternatively, you may find that you can get a more competitive rate with a standard mortgage through a different lender. If you’re looking to borrow to make improvements to your home to make it even more energy-efficient, you may find a green mortgage is the best option. However, depending on what other lenders are offering at the time, it might not be the cheapest option for you. That's why it's always good to shop around when looking for a mortgage. You should also speak to an independent mortgage broker who can look through all the options to help you find the best mortgage for your needs.

How Much Can You Borrow with an Eco Mortgage?

How much you can borrow on an eco mortgage will depend on several factors, including:

How Much Do Green Home Improvements Cost?

While eco-friendly improvements to your home can be a great investment, they’ll come at a cost. The average cost of improving a home to achieve an EPC C band rating is £8,100. Installing a range of recommended energy improvement measures to enhance the rating of homes currently rated F or G could cost in the region of £25,800. It's important to keep in mind that while you’ll see savings on your energy costs, the true financial payback of making these green improvements could take several years.

What Are Eco Self-Build Mortgages?

If you want to build your own environmentally friendly property from scratch rather than purchasing an existing one, you may require an eco self-build mortgage rather than a standard mortgage. You'll also need to use a builder with experience building eco-friendly properties and using green materials. The builder will be able to give you an outline of how much it will cost to build your green home, breaking down each cost into separate sections based on each stage of the build. Most eco homes are built using non-standard building materials, so these properties are categorised as "non-standard construction".

After each stage of the eco build is finished, an independent surveyor will visit the property to check that the work is completed so the lender can release the funds to the builder. With some construction loans, you only have to pay interest on the money drawn out each month and only start to repay the loan once the build is complete. If you are looking to build your eco-friendly home on a brownfield site, you may find it harder to get a mortgage, but certainly not impossible. Lenders are generally more hesitant to lend for this type of development as the land is often derelict or contaminated, and it is viewed as more of a lending risk.

How Can I Apply for a Green Mortgage?

Once you have found a suitable eco mortgage and checked that you’re eligible, you can apply for a mortgage in principle with the lender in much the same way as applying for a standard mortgage. The documents you’ll need for your green mortgage application will vary depending on the lender. In most cases, you typically need proof of ID, such as a full UK photocard driving licence or current passport and proof of address in the form of council tax or utility bills. You'll also need proof of earnings, such as payslips, bank statements, and evidence of your mortgage deposit. You'll probably have to provide evidence of your home's energy efficiency by supplying the lender with a valid EPC. If it's not built yet, you'll need to provide a projected energy assessment.

If you are looking for an eco mortgage, speak to our team of independent advisers at John Charcol. At John Charcol, we have access to an extensive range of specialist mortgage products, including eco self-build mortgages. Our expert advisers can help you find the right financing option. Contact us on 0330 433 2927 or submit an online enquiry to learn more.