Earth Day 2024 – Are Green Mortgages the Answer to Sustainable Homeownership?

The traditional role of the mortgage industry is to facilitate the purchase of homes, but its influence extends far beyond simple transactions. By promoting and incentivising sustainable practices in homeownership, the mortgage industry can contribute to reducing carbon emissions, conserving resources, and building more resilient communities.

the UK is to meet its net-zero commitments come 2050, don’t underestimate the role intermediaries will play in helping achieve that goal. Buildings account for around 23% of total UK greenhouse gas emissions[1]. So, there’s plenty of work to do to get them up to scratch. Energy efficiency and green retrofit technologies will play a big part in reaching net-zero, along with financial products and services that make them available for homeowners.

The recent energy crisis and being more climate-conscious has encouraged homeowners to start looking at ways they can upgrade the energy efficiency of their properties. And many of your clients will be worried about the environment but not know how they can make changes, or where to get finance to do it. They need help, just as they would with understanding surveys or conveyancing.

And that’s where you come in. It doesn’t mean you need to be an expert on renewable energy, but if you can start a conversation with your clients, answer their questions, and point them toward some useful resources, you can strengthen your relationship. It’s about enabling rather than advising.

Ready to jump in? Read on and find out what you need to know.

What you should know

So what exactly is a green mortgage?

These are loans that are intended to incentivise the appeal of owning energy efficient homes, or retrofitting them with upgrades for their existing property, maybe with solar panels or a ground source heat pump. Lenders will generally offer cashback or a better interest rate.

Borrowers will need to demonstrate that the property or the upgrades can meet environmental criteria.

What prompts homeowners to upgrade their energy efficiency?

There can be several triggers that encourage property owners to start the process of improving the energy efficiency of their home. This can happen when:

• They’ve just bought a new property
• When their children have flownthe nest
• Doing other renovations to the home
• Concern over rising energy prices
• A desire to cut their carbon footprint

Who qualifies for a green mortgage?

Just like any other type of mortgage, your clients will have criteria they need to meet, so again you can make things easier by having good knowledge of green mortgage lenders and their criteria.

Generally, your customers will need to buy a property with an Energy Performance Certificate (EPC) rating of either A or B to be eligible for a green mortgage. If it’s home improvements your client is looking at, they’ll need to spend a certain percentage on improving their EPC rating to get incentives like cash back or lower rates from the lender.

What are the benefits to clients?

Green mortgages often come with benefits such as discounted interest rates, reduced fees, or increased loan-to-value ratios for properties meeting certain energy efficiency standards. They can also result in lower utility bills for homeowners due to reduced energy consumption.

Of course, customers on a green mortgage will also find they are enjoying lower energy bills as a result of their better EPC rating. Not only that, if they can upgrade their property to an A or B rating they could find their property is up to 6% more valuable than if it were still a D rating[2].

What are the benefits to mortgage advisers?

Demand from your clients for green products is only going to increase. If you have  good knowledge of retrofit options and experts in that field, you are then in a position to point your clients in the right direction to find  practical and lending solutions.

If you can demonstrate a knowledge of which lender products will support a client’s needs, you will bolster your credibility and strengthen your relationship with them. And that applies to having awareness of new rules and regulations that may affect a customer’s decisions on upgrading their property.

What kind of retrofit measures are available?

If your clients are looking to improve their property with retrofitting measures and technologies, they have several options available, such as  upgrading their energy efficiency with measures like:

• Loft and roof insulation
• News windows and doors
• Floor insulation
• Cavity walls insulation

Or, reviewing their current heating options with technologies like:

• New smarter heating controls
• Biomass heating systems
• Ground source heat pumps
• Air source heat pumps
• Heat networks and district heating (communal schemes that supply heat to small building developments)

What products are out there?

This is a growing trend with the number of green products on the market growing steadily. From 2017 when there were just three lenders to 2022 when that had grown to 51, now around 57% of lenders provide green mortgages[3].

Using a solution like Criteria Brain makes it quick and simple to find lenders that will consider green mortgages applications. A search of the system shows that currently, 27 lenders could be approached for such a product.

For a more detailed view of the green mortgage market from the broker perspective, you can download the Green Finance Institute’s Broker Handbook here.

By staying informed about green mortgages and incorporating them into your offerings, you can cater to the evolving needs and preferences of environmentally-conscious clients while supporting sustainable housing initiatives.