Green Mortgages

How does the mortgage application work for a green mortgage? 

It really is no different in terms of the application process. There isn’t much more to provide. Lenders are pretty well geared up to do this, particularly at remortgage, which is the golden moment to assess whether this is something that you’re going to do.

Just be prepared with a little bit more information. You need the energy performance certification of the property. You also need details of any works you plan to carry out in line with that, because different lenders are structuring their products in different ways. 

They’ll want to know what you’ve got planned and the likely costs of those plans. Engaging with a mortgage advisor as early as possible is always recommended. Get in touch and have a chat with an advisor, seven, eight or nine months before your current product is ending, as that gives you time to get quotes from any company that would carry out that work. 

As Rich rightly points out, we’ve partnered with Effective Home, which we’re very excited about, and they could certainly help in that respect. We could make that referral, and have all of the details to hand ready for the mortgage. 

If you are buying a brand new property that is already very energy efficient, again, you might need to evidence that EPC rating. The lender may instruct a surveyor or a valuer to go out to the property or speak to the developer. 

So you just need that little bit of extra information, but broadly speaking, the process is similar to a regular mortgage application.

How much can I borrow and what deposit do I need for a green mortgage?

There’s no difference from a standard product. If we’re going for a green mortgage because it’s property specific, that might be a bit more conservative on the borrowing. 

If you’ve got a custom-built property made of wood or a reconditioned shipping container, that’s unfortunately not great security for the lender. They do get a bit more cautious. For that reason, you’re probably looking at four to 4.5 times your income for a non-standard property. 

Even though it is a green and efficient property, the resale market will be smaller and banks will be more wary. 

If it’s the other side, where you’re making your property more efficient, you might be able to borrow more. Some lenders are going to five or 5.5 times income. Plus, the overall running costs of the property are actually cheaper. 

This will soon be standard practice by banks. They are going to look at your total outgoings, including utility bills, and the energy efficiency of your home in deciding how much you’ll be offered. So please, do bear that in mind for the future. 

In terms of deposit, the usual rules apply. If it’s a non-standard property, you might have to put down 25% deposit or more, because that’s when lenders consider things lower risk. If it’s a standard property, there are providers that go up to 100% these days, but 95% tends to be the highest for most lenders. 

As with all mortgages, every 5% deposit you put down up to 40% simply increases the choice of lenders – and typically you get a lower interest rate as well. 

Are there any extra costs involved with green mortgages?

In theory, the opposite should be true. The whole idea behind these products is to encourage a customer to improve the efficiency of their home. And making your home cheaper to run is the main reason why people would look to do it.

Once that’s happened and the lender is comfortable that you’ve conducted the works and the property is more energy efficient, they will reward you. You might get a slightly cheaper rate, cashback or cheaper fees.

Lenders bringing these types of products to market are generally trying to offer a cheaper deal than a standard product. 

How much can I save with a green mortgage? 

Our link with Effective Home means you will get specific details around this. Their survey will explain that for the outlay of X money, you should save Y per month on running costs. It will calculate how long it takes to make the money back and how long it will be profitable for. 

You should be better off – otherwise, what’s the point? It’s free to get the survey done. The quotes are completely free and not binding in any way. You couls simply make an informed decision. Is this the path you want to go down ? It’s a straightforward exercise from there.

What are builders doing to ensure that houses being built now and in the future are more green?

We’re very experienced in the new build space and we have good exposure to some senior decision makers at major house builders. What’s really nice is that they’re all taking this very seriously. 

That’s partly because it’s being mandated upon them by the government, irrespective of who’s sitting in parliament. There is a collective will to take us towards net zero and they’ve recognised a growing demand from customers. People want to have a home that is more efficient with cheaper utility bills, and they want to do the right thing for the planet. 

The major house builders have very clear targets to bring their stock up to a hyper energy efficient level at B and above. In an A rated property, people could potentially sell energy back to the grid. The efficiency of their home is so good they could provide energy for others. 

The builders have set targets and announced those to their shareholders, which solidifies how committed they are to that. It’s good to see, because I think it’s the right thing to do. 

What are the pros and cons of green mortgages? 

The pros are that obviously this saves you money and the industry is going this way. Green mortgages will start to phase out. And if we look at the property type, these products might allow you to buy a property that’s non-standard – an unusual, eco-home.

On the downsides, this area is still a bit clunky at the moment. It’s not entirely clear who qualifies for what. The products are difficult to compare because this is such an embryonic path for lenders.

The product terms are different, the cashback’s different, the Loan to Value limits might be different. There could also be an outdated understanding of what green is. People think about knitted jumpers and living off grid and all this sort of stuff. It’s really not that. It’s a very practical thing. 

Businesses are getting sort of to grips with the positive impact we could have on the environment, and this is one that we could all directly influence. 

What else do we need to know about green mortgages?

We are very proud to have partnered with Effective Home and that’s a significant staging post. We have been on a mission as a broker to raise awareness and educate clients around the importance of these things. 

It’s partly because we have been historically very involved in New Build, where the energy efficiency message is ringing loud and clear. But a broker could really assist in those early conversations, explaining to a customer what may or may not be possible. 

We could now bring in experts who are at the top of the game to give advice and guidance on the options, and how that might impact you going forward.

There’s a neat list of things you could potentially do, and we join that up with the mortgage conversation. Having those two tracks running alongside one another with a clear line of communication makes it really easy.

We want to hold your hand all the way through so you realise that this is really straightforward. It’s the right thing to do and could make a lot of sense financially. 

You may have to pay an early repayment charge to your existing lender if you remortgage.

Your property may be repossessed if you do not keep up repayments on your mortgage.

There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.