How a ‘green’ house can lower the cost of your mortgage?

Energy-efficient home owners can save hundreds of dollars by choosing a green mortgage – available from a growing number of lenders

Owners of energy-efficient homes can save hundreds of dollars by opting for a green mortgage – available from a growing number of lenders. Borrowers planning to improve their home’s green credentials may also be eligible.

Green mortgages are deals with special rates that are only available for homes with a high degree of energy efficiency. They are designed to encourage people to buy an efficient home or to refurbish a drafty home.

There are now more than 25 green mortgages available – from bigger players including Virgin Money, Barclays and Nationwide, as well as smaller mortgage banks such as Dudley and Saffron.

Economical: Green mortgages are deals with special rates available only for homes with a high degree of energy efficiency

The savings can be significant. For example, Barclays offers a green mortgage with a down payment of ten percent, fixed for five years at 3.15 percent per year. The equivalent standard mortgage has an annual rate of 3.25 percent. The borrower would save £719 over the five years of the deal on a £150,000 loan.

The Barclays Green mortgage is competitive compared to other non-green options on the market. For example, Atom Bank offers one of the best five-year deals at 3.19 percent.

While the Atom Bank deal generally requires a ten percent down payment, it will lend to new-build home buyers only if they have a 15 percent down payment or 20 percent for new-build home buyers.

Nationwide offers cashback to buyers of energy-efficient homes on all of its mortgages. Buyers of homes with a top efficiency rating will receive £500, while those with a very good rating will receive £250.

Homeowners with a poor energy efficiency score can also get a green mortgage if they commit to making improvements.

For example, specialist lender Kensington has an eKo Cashback mortgage, which pays £1,000 to borrowers who improve the energy efficiency of their home. Saffron Building Society has a Retro Fit Mortgage, which offers a rate reduction if you can improve the return on your home within six months of taking out the loan.

Some lenders also offer additional loans at a competitive rate for anyone looking to finance green home improvements. Nationwide’s Green Extra Lending offers financing up to £25,000 at an interest rate of 0.75 percent per annum.

The loan can be used to finance green projects, such as installing solar panels, improving insulation, upgrading a boiler or installing a charging station for electric cars. The rate compares favorably with a personal loan, which would cost a minimum of 2.8 percent per annum for a loan of £25,000 over three years.

David Hollingsworth, mortgage broker at London & Country, says green mortgages are available to both homebuyers and rental investors and can be especially beneficial to new-build buyers, who generally have a high efficiency rating.

However, he cautions that mortgages should not be chosen solely on their green credentials, as better rates may be available elsewhere.

“The credit market is so competitive right now that it is very difficult for green mortgages to trump the rest,” he says. “But we do need sensible and affordable options to help people buy energy-efficient homes or make home improvements. Green mortgages should only become more competitive in the long run.’

Certainly, the energy efficiency of British homes will need to be improved quickly if the government is to achieve its ambitious target of achieving net zero CO2 emissions by 2050.

Home heating accounts for around 14 per cent of the UK’s CO2 emissions and two-thirds of the country’s homes have poor energy efficiency ratings.

The Department for Business, Energy and Industrial Strategy says lenders can play a key role in encouraging borrowers to both buy greener homes and improve the energy efficiency of existing homes.

However, Aaron Strutt, principal at mortgage broker Trinity Financial, believes that green mortgages will only succeed if they offer homeowners the best value.

“We get people asking us about ethical loans from time to time, but we don’t get people asking us about green mortgages,” he says. ‘People always want the cheapest rate, the best loan amount and the lowest arrangement costs.’

OUR LOAN OF £15K FOR A WARMER HOUSE

Janice and Steve Macleod installed a new energy efficient air/water heat pump last month using a deal from Nationwide.

Janice, 59, who works at her local NHS hospital, says: ‘We wanted to reduce our heating costs and after our daughter bought a new build house with a similar heating system we decided to investigate for ourselves – we were so impressed with the warmth .’

The pump extracts heat from the outside air, even in cold weather. At £17,000, however, it was an expensive expense. The couple, who hail from Fort William in Scotland, took out a green loan of £15,550 from Nationwide, with an interest of 0.75 percent per annum for five years.

“The rate was so low it was crazy not to take it. It will only cost us about £300 in interest over five years,” adds Janice.

The loan is significantly lower than their main mortgage with the lender, which is set at 2.7 percent per annum.

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