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What are green mortgages?

By Sophie Marrow

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The property sector is continually seeking new ways to be sustainable and eco-friendly, and there are countless examples of companies making moves to become greener.

This week, we’re discussing sustainable and green initiatives for London homes. Today is World Habitat Day, which was created by the UN to get people thinking about the ways we develop land for housing. It focusses on our responsibilities, when building and maintaining our homes, to protect people, flora, fauna and the planet. It is a topic that’s close to heart for us at Foxtons. So this week is devoted to information around making the habitats we live in greener.

Hammerson, the renowned retail developer, has committed to becoming net positive in terms of carbon, water, resource use and socio-economic impacts by 2030. Land Securities is looking to minimise the impact of its supply chain emission by prioritising supplies made of recycled material. Taylor Wimpey has declared it will increase natural habitats by 10% on its new sites by 2023. Barratt Developments has confirmed 100% of its own electricity will be generated by renewable sources by 2025.

With more and more properties being designed with the environment in mind, green mortgages are likely to play a significant role in the ongoing trend towards conservation and preservation, but what exactly are they, and who can make use of them?

An overview of green mortgages

A green mortgage is a product that can be offered by a lender if the buyer is able to establish that the property they wish to purchase meets particular environmental standards. The most straight-forward way lenders can establish that is with EPC ratings, and lenders often require an A or B rating (although some will take C ratings) to offer a green mortgage.

It should be relatively easy to determine whether your home is rated high enough when it comes to new builds, as they often come with sustainability ratings. But it’s not always so simple with older houses. In that case, if the buyer is able to prove that they are going to invest in the property to bolster its environmental performance, they may be deemed eligible for a green mortgage.

The idea of a green mortgage is to incentivise buyers to either buy a property that has in-built green credentials, or to commit to renovating an existing property so that it is more environmentally efficient. Green mortgages tend to come with a lower interest rate or allow buyers to borrow more, and given green properties are normally cheaper to run, buyers could end up saving a noteworthy sum of money.

Why do lenders like ‘green’ properties?

When lenders provide the finance necessary to buy a house, they want to minimise risk as much as possible. Properties built with sustainability in mind are nearly always cheaper to operate, meaning the borrower is less likely to come up against financial issues, meaning they are unlikely to default on the loan, and will therefore be regarded as a low risk investment.

solar panels visible on a house roof
Solar panels, like the ones on the roof of this house, can save considerable money and raise your EPC rating.

Green properties also – generally speaking – retain their value more so than those without green credentials. This means any lender would be shouldering even less risk, and therefore lending becomes a far more attractive proposition.

Improving an existing property

There are numerous ways to make an existing property more environmentally friendly. Some of the most effective examples are:

- Installing quality insulation

- Getting double (or triple) glazed windows

- Investing in efficient heating systems

- Installing solar voltaic panels

- Installing wind turbines

- Making use of biomass heating

Depending on budget and the property itself, some of these changes will undoubtedly be more viable than others, but it is certainly worth taking some time to consider the financial difference they could make in both the short- and long-term.

Ahead of the curve

As we go, there will be more and more reason to go green. By 2025, all landlords will need an EPC rating of at least C for new tenancies. By 2028, the EPC rating will be required for all tenancies, old or new. This is part of the government’s goal to get all homes across the UK at an EPC rating of C or higher. These EPC rule changes are bound to affect access to green mortgages, so it’s worth it to get yours in early. You might even be able to fund some of the modernisation costs through re-financing, so be sure to talk to a mortgage adviser when you're getting your plan in place.

How to get a green mortgage

If you want to find out more about green mortgages, or believe that you could benefit from getting one, speak to Alexander Hall, London’s leading mortgage broker. This will give you a robust idea of what is available to you, and also what you can do to make yourself - and your property - more attractive to lenders.

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