Currently, Green Mortgages represent only 15% of the total mortgage market in the United Kingdom, and only 3% of properties have an EPC rating of either A or B. We have spoken about the poor quality of the UK’s existing properties and energy efficiency, with many houses proving to be below a grade C on numerous occasions. There is a push to improve many properties across the UK to meet the government’s energy goals by 2050.
To explain further, Jamie Alexander, Mortgage Director of Alexander Southwell Mortgages, shares his insight into what Green Mortgages are and if you should consider getting one:
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What Are Green Mortgages?
A green mortgage in the UK rewards mortgage borrowers for making energy-efficient improvements to their homes or purchasing a property with an energy efficiency rating of A or B; typically, these tend to be new build properties.
These improvements can include installing solar panels, upgrading insulation, or replacing old boilers with more energy-efficient models.
Borrowers may be eligible for a lower interest rate or other incentives when they take out a green mortgage. The purpose of a green mortgage is to encourage individuals and households to reduce their carbon footprint and lower their energy consumption. But with the current high cost to make these improvements, is it worth completing them to get a green mortgage?
What Are Energy Efficiency Ratings?
Energy Performance Certificates (EPCs) are also used to rate the energy efficiency of a building. EPCs are mandatory when a building is constructed, sold or leased. They provide a rating of the building’s energy efficiency from A (most efficient) to G (least efficient).
Even if you rent your home, you could still implement some improvements noted on the EPC, such as switching to more energy-efficient light bulbs. EPCs are valid for ten years from the date of issue. You can find EPC ratings at Gov.UK for properties in England, Wales and Northern Ireland. There is a separate register for properties in Scotland.
The UK climate change committee has estimated that £250 billion needs to be invested in UK home upgrades by 2050.
Some lenders are implementing a minimum standard for your EPC rating. So there is an element here where you will eventually have to look at this; even if you turn a blind eye to it right now, you will need to make space and time to do that. There are many places where you can book somebody to carry out an EPC inspection on your home.
What Is The Cost Of Making Your Home More Energy Efficient?
Some of the costs associated with improving the energy efficiency of a home in the UK include:
- Solar panels: The cost of installing solar panels on a home in the UK can vary depending on the size of the system and the type of panels used. On average, the cost of installing a typical 3-4 kW solar panel system on a home in the UK can range from around £4,000 to £8,000.
- Heating and cooling equipment: The cost of upgrading a home’s heating and cooling equipment can also vary depending on the equipment used. For example, a new boiler can cost anywhere from £500 to £3,000, while a new heat pump can cost from £4,000 to £12,000.
- Insulation: Insulating a home can also be a cost-effective way to improve its energy efficiency. The insulation cost can vary depending on the type of insulation used and the size of the property. On average, the cost of insulating a typical 3-bed semi-detached house in the UK can range from £300 to £1,000.
- Windows and doors: Replacing old windows and doors with more energy-efficient options can also help to improve a home’s energy efficiency.
The cost of this can vary depending on the type of windows and doors used, but on average, the cost of replacing a window can range from £450 to £1,000, and the cost of replacing a door can be around £450 to £800.
It’s important to note that these are just averages, and the cost can vary depending on the specific measures and the region you are in.
What Savings Could You Make On Your Mortgage?
Savings on a mortgage that you could get with a green mortgage can vary depending on the lender and the specific terms of the loan.
However, some lenders may offer lower interest rates or other incentives for borrowers who make energy-efficient improvements to their property:
- Virgin Money offers lower mortgage rates with an EPC at A or B. You also need a minimum of a 15% deposit.
- NatWest offers a lower mortgage rate to properties with an EPC at A or B. They offer their deals to remortgages as well as homebuyers. The maximum LTV is 85%.
- Barclays Bank requires an energy efficiency rating of 81 or above or an Energy Performance Certificate at bands A or B. The property must be a new build, and you must buy it to live in.
- Nationwide Building Society has a minimum efficiency rating of 86 for borrowers to receive £250 cashback, which increases to £500 cashback for properties with scores of 92+.
From seeing these mortgages start being issued in 2018, it is great to see most of the large banks and building societies across the UK offering products to try and mitigate climate change.
They still have a lot to do to warrant the consumer investing thousands of pounds in getting a cheaper mortgage. And a brighter light must be shining on these products, as many people aren’t aware that they exist.
Although, there are more benefits than just getting a cheaper mortgage. Making your home more energy efficient can lower your monthly energy bills. It can increase the value of your home, make it more comfortable to live in and reduce your environmental impact. Additionally, some energy-efficient upgrades may qualify for government incentives or tax credits, which can offset the cost of the upgrades.
In the long term, making your home more energy efficient will save you money on utility bills and will inevitably need to be done to meet government targets and new environmental standards.
How Do I Apply For A Green Mortgage?
Mortgage brokers can help your mortgage search, particularly if you’re looking for a more specific deal. They remove a lot of the paperwork and hassle of getting a mortgage and help you access exclusive products and rates that aren’t available to the public; they’ll know the lenders who can offer green mortgages, those who would best suit your circumstances.
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