There’s plenty of debate these days about the pros and cons of the race towards net-zero.
But one thing isn’t up for debate: going green when taking out a mortgage can be very good for your bank balance.
I’m often asked, “What are green mortgages?” Put simply, they’re mortgage products that incentivise buyers who choose an energy-efficient home, or a property that includes approved eco-friendly features.
The rewards vary. They might be financial, such as cashback, or come in the form of preferential mortgage terms.
The aim is to encourage more people to consider greener homes.To qualify for a green mortgage, you generally need to meet one of two criteria.
Firstly, you must live in an energy-efficient home.
If the property you’re buying or currently live in has an EPC rating of A or B, you could receive cashback or benefit from a lower interest rate.
This is usually available to homebuyers and, in some cases, people remortgaging.
Alternatively, you need to be carrying out ‘energy-efficiency’ home improvements, such as replacing single-glazed windows, upgrading a heating system, or installing solar panels.
In this case, lenders may offer a discounted rate or cashback on the money borrowed for those improvements.
Choosing a green mortgage can lead to savings in two main ways: lower mortgage costs (through reduced interest rates or upfront cashback) and potentially significant reductions in energy bills.
Sam Fox says going green when taking out a mortgage can be good for your bank balance
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Mortgage savings
Lower interest rates:
Many lenders shave a little off the interest rate for green mortgages compared with their standard deals.
For example, a reduction of around 0.1 per cent on a £200,000 mortgage could save you roughly £12 a month, or £720 over a five-year fix.
Cashback offers:
Some lenders prefer to offer a one-off cashback payment instead of a lower rate.
These typically range from £250 to £500, and can reach as high as £2,000 for home-improvement-linked deals.
It’s worth remembering, though, that while green mortgages often offer better terms than the equivalent non-green products from the same lender, they’re not always the cheapest deals on the entire market.
Comparing all options with a mortgage broker is essential to ensure you get the best overall value.
Energy bill savings
The biggest savings often come from the property itself.
Green mortgage eligibility usually requires an EPC rating of A or B, and homes with these ratings typically cost far less to run.
An energy-efficient home uses less energy to heat and cool, which means lower utility bills.
Some estimates suggest that homeowners can save around £1,800 per year on heating costs alone by living in an energy-efficient property.
Nationwide are offering offer existing customers the chance to borrow extra funds at 0 per cent interest for a fixed period
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GETTY / NATIONWIDESome lenders, including Nationwide, also offer existing customers the chance to borrow extra funds at 0 per cent interest for a fixed period (usually two or five years) to pay for improvements such as solar panels, heat pumps, or insulation – helping you cut energy costs even further.
In summary, a green mortgage can offer a powerful combination of direct financial incentives, like lower rates or cashback, and indirect savings through reduced energy usage.
For many homeowners, it’s a route that pays off twice.