What is a green mortgage?

Written by

Tim Greenhalgh

Posted on

August 13, 2019

Posted in

You may have seen news around the launch of green mortgages over the past few months but what exactly are they?

Green mortgages are a new form of house-purchase loan with discounted rates that are tied in with energy efficiency.

Homeowners could get a better rate with the green mortgage if they improve the energy rating of their property, while new home buyers will be rewarded by choosing an energy-efficient home.

The green mortgage initiative, with Barclays Bank one of the first to offer them, is being strongly promoted by the government.

Green Finance Strategy

The UK Government launched a £5 million fund as part of  the Green Finance Strategy at the beginning of July to help the financial sector develop green mortgages and other green home finance products.

The Green Finance Strategy sets out the Government’s long-term plans, informed by the recommendations of the Green Finance Taskforce, to increase the flow of cash to green projects and make London the leading hub for the finance sector’s low-carbon transition.

With a green mortgage, homeowners could receive discounted rates once they have upgraded the energy rating of their home.

The initiative could benefit up to 17 million domestic properties with Energy Performance Certificates (EPCs) rated in the least efficient bands – below C. Homes are currently responsible for 15% of the UK’s carbon emissions.

Lower interest rates

Barclays has been recognised as a leader in the new field, last year launching a green mortgage that gave buyers of new-build energy efficient homes access to lower interest rates. It was awarded the Moneywise Mortgage Award for Innovator of the Year in June.

The idea behind lower rates for green mortgages is that borrowers who have more energy efficient homes will be paying out less in utility bills each month and so are seen as lower risk, being less likely to default on their repayments.

The Barclays Green Home Mortgage offers 2.13% two-year fixed rates with a maximum Loan to Value (LTV) of 90%. It is open to people buying a new-build from a range of developers with an energy efficiency rating of 81 or above or which is in an A or B band.

The Moneywise Award judges said the Barclays green mortgage was genuinely responding to the needs of the target market, with the focus on energy efficiency, which should be a strength of new-build.

Climate-friendly

The Treasury’s Green Finance Strategy is fully focused on ensuring that London will be at the heart of worldwide initiatives to steer global capital towards climate-friendly activity.

Green mortgages are a key element of green finance, which itself is seen as crucial to the successful transition to net zero emissions, with the UK being the first major economy to adopt the Net Zero target, to be achieved by 2050.

The Government believes that the financial services sector can drive even more ambitious action, demonstrating to the rest of the world that responsible business can benefit the economy and the environment.

In launching the Green Finance Strategy it said:

“To fulfil our world-leading commitment to reach net zero emissions by 2050, we need an overhaul of our housing stock to tackle the disproportionate amount of carbon emissions from buildings.

“By rolling out more green mortgages and reducing the costs of retrofitting older homes we’re encouraging homeowners to improve the efficiency of their homes and save money on their energy bills, helping to ensure everyone has access to a warm and comfortable home.”

The strategy also offers incentives to companies with a £10 million innovation fund for developing innovative ways of reducing the cost of retrofitting the UK’s old housing stock.

Reduce your carbon footprint

There are many methods of making your home energy efficient. For example, changing your traditional bulbs to LED bulbs or using a renewable energy supplier that provides you with energy saving products.

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