Green mortgages: how they work and who offers them

Green mortgages 

If you've an energy-efficient home, could you save with a green mortgage?

A growing number of mainstream lenders are now offering so-called green mortgages. The idea is that if you're moving into an energy-efficient home or making your property greener, your lender will reward you for that with a better interest rate or cashback on your mortgage. But we've found that 'green mortgages' aren't always the best option. This guide takes you through what you need to know...

This is the first version of our Green mortgages guide. We'd welcome any feedback or comments that you've got – you can post your feedback in the forum.

Looking for more mortgage help?

Not sure how a standard mortgage (let alone a green one) works? See:

Or want more green tips? 

MSE weekly email

FREE weekly MoneySaving email

For all the latest deals, guides and loopholes simply sign up today – it's spam-free!

What is a green mortgage?

Essentially, a green mortgage is meant to increase the appeal of owning a green property. On top of the savings you'll make on your energy bills each month, the idea is that lenders give you cashback and/or a better interest rate when you take out a green mortgage on an energy-efficient property.

While you'd have been hard-pressed five years ago to find a single mainstream lender willing to give you preferential treatment on the basis of an energy performance certificate (EPC), there's now a handful of high-street banks that claim to do just that via their own versions of a green mortgage.

What do you need to do to qualify for a green mortgage?

Green mortgages generally fall into two categories:

  1. Those that reward you for living in an energy-efficient home. Here, if the property you're buying or living in has an EPC rating of A or B, you'll get cashback or a better interest rate on your mortgage. This type of green mortgage is available to homebuyers and, in some cases, remortgagers.

  2. Those that reward you for carrying out 'green' home improvements. Green improvements could include replacing single-glazed windows, upgrading your heating system, or installing solar panels, for example. Typically, lenders will offer you a discounted interest rate or cashback on any money you borrow to upgrade your home's energy efficiency.

Lenders are willing to offer incentives of this nature because they increasingly see energy-efficient properties – in this era of combating climate change – as less risky purchases and more likely to hold their value. Plus, if a homeowner is spending less on their energy bills each month, there's less of a chance they'll struggle to meet their mortgage repayments.

What is an energy performance certificate?

An energy performance certificate (EPC) is a document which indicates how energy efficient a property is. They are required whenever a property is built, bought or sold, with certificates lasting for 10 years.

The rating system goes from A to G, with the most energy-efficient homes getting an A rating, and the least getting a G. Between October and December 2021, more than 370,000 new EPC certificates were lodged in England, of which 84% had an energy-efficiency rating A or B.

Older properties typically have worse EPC ratings, with Halifax estimating that just 10% of pre-1900 homes have at C rating or better.

Details of a property's EPC rating are normally available online. Use the Gov.uk database if the property you're researching is in England, Wales or Northern Ireland, and the Scottish Register for properties in Scotland.

  • Are all properties required to have an EPC?

    There are some buildings that do not need an EPC. These include:
     

    • Places of worship (such as a church)
    • Listed buildings
    • Residential or holiday accommodation that is used less than four months a year
    • Industrial sites and workshops that do not use a lot of energy

Is there anything particularly green about the mortgage itself?

In short, not really...

Based on our research, the only thing that's really 'green' about this current crop of green mortgages from mainstream lenders is the property you're moving in to, or the home improvements you're making. So while the lender is trying to increase the chances of you living in an energy-efficient property, there's nothing green about the actual mortgage.

As with a standard mortgage, you still borrow a large sum of money and pay it back in monthly instalments, with the interest going into your lender's pocket for it to invest. Just because you take out a green mortgage doesn't mean the lender isn't investing in environmentally-damaging industries, such as fossil fuels.

If you're interested in taking out a green mortgage, but are worried about the lender's green credentials, the likes of Bank Green and Banking on Climate Chaos have more information.

Which lenders offer green mortgages?

While it's likely more will start to offer them in future, the number of high-street lenders that currently offer a green mortgage is small, so it's easy to give an overview of the incentives on offer:

  • Nationwide. Offers £500 cashback on your mortgage when buying a property with an EPC rating of A, or £250 if it's B rated. Nationwide also offers additional 'green' borrowing, where you get a preferential interest rate on money borrowed to carry out green home improvements (the rate's currently 1.99%). You can borrow between £5,000 and £25,000 on a two-year or five-year fix.

  • Barclays. Offers a preferential interest rate if you buy a property with an EPC rating A or B. This is typically equivalent to a discount of 0.1 percentage points (for example, 1.9% as opposed to 2%). However, the property must be a new-build bought directly from a builder or developer. Some of Barclays' green mortgages can be used together with the Help to Buy equity loan scheme.

  • NatWest. Offers a preferential interest rate (though this is currently a miniscule 0.01 percentage points difference from its standard mortgages), and cashback of up to £350 when you purchase or remortgage a property with an EPC rating of A or B. The maximum you can borrow is 85% loan-to-value (see our How much can I borrow? guide for more on how loan-to-value works).

  • TSB. Offers a preferential interest rate to existing homeowners with a TSB mortgage who need to borrow extra cash to carry out green home improvements, equivalent to 0.5 percentage points (for example, 1.24% compared to 1.74%). The preferential rate only applies to the part of the extra cash set aside for the green improvements. TSB also plants a tree for every property purchased with the help of a TSB mortgage.

  • Virgin Money. Offers a preferential interest rate for homebuyers who purchase a new-build property with an EPC rating of A or B, equivalent to 0.05 percentage points (for example, 1.39% compared to 1.44%). The maximum loan-to-value is 85%, though Virgin Money's green mortgage can be used together with the Help to Buy equity loan scheme.

  • Halifax. Offers up to £1,000 cashback to homebuyers, remortgagers and additional borrowers who carry out green home improvements to their property. You'll need to have applied for a Halifax mortgage (or a further advance) by 31 July 2022, registered for the cashback by 31 August 2022, and completed the home improvements by February 2023 to qualify.

Do any non-high street lenders offer green mortgages?

There are also some smaller lenders which offer their own versions of a green mortgage. These include:

  • Kensington Building Society. Offers £1,000 cashback to homebuyers and remortgagers who improve a property's energy efficiency within 12 months of taking out a mortgage.

  • Monmouthshire Building Society. Offer a discounted interest rate to first-time buyers and home-movers if the property has an EPC rating of A. The discount is typically worth up to 0.9 percentage points off Monmouthshire's equivalent rates.

  • Saffron Building Society. Offers a discounted rate with its 'retro fit' mortgage if you can prove that your home improvements have bumped up your property's EPC rating.

  • Swansea Building Society. Offers a fixed percentage discount off of its standard variable rate for properties with an EPC rating of A or B.

  • Gatehouse Bank. A sharia-compliant lender which offers a discounted rental rate on properties with an EPC rating of A or B, plus it'll offset the property's carbon footprint for the duration of the fixed term of the product you take out.

Are there any genuinely green mortgage lenders?

Casting the net wider, there's also Ecology Building Society. While it doesn't do 'normal' mortgages, it might be able to help if you're looking for specialist financial support to carry out a large green renovation or conversion, as well as help for woodland projects. It also provides mortgages to those buying land for permanent canal boat moorings!

And while Ecology BS doesn't offer standard green mortgages, it's arguably the one lender that can be considered to be genuinely green. It describes itself as "dedicated to a green society" by providing mortgages that "respect the environment". It's also one of only two banks or building societies which scores more than 15 out of 20 on Ethical Consumer's lender rating system.

Be aware though, that while it's unfair to compare it with mainstream lenders, interest rates on Ecology's mortgages are high. However, you could qualify for a 'C-Change' discount off your interest rate once you're able to prove that your property is energy efficient.

Green mortgage rates can usually be beaten on rate by 'non-green' mortgages

We have to be honest. While the idea behind green mortgages is admirable, the reality is they aren't currently the cheapest mortgage deals on the wider market.

Yes, any preferential interest rate and/or cashback that comes with a green mortgage could make the deal cheaper overall than any equivalent non-green deal from the same lender.

However, we're yet to see ANY green mortgage deal offered by high-street lenders that can't be substantially beaten in interest rate by normal, non-green mortgage deals on the wider market. In other words, it's possible to get a cheaper interest rate via a normal mortgage for a property that would otherwise qualify for a green mortgage deal.

These tables show you a selection of current green mortgages compared to market-leading non-green mortgage deals:

Examples of cheap green and non-green TWO-YEAR fixed mortgages on a £200,000 property (1)

Loan-to-value Green/Non-green Interest rate + total fees (2) Monthly payment (3) Cost over two years (4)
60% Non-green (Progressive) 1.99% + £170 £508 £12,362
60% Green (Virgin Money) 2.18% + £963 £519 £13,318
75% Non-green (Progressive) 1.99% + £170 £635 £15,412
75% Green (NatWest) 2.19% + £875 £650 £16,372
90% Non-green (Saffron) 2.37% + £1,159 £796 £19,996
90% Green (Barclays) 2.60% + £115 £817 £19,698

(1) Correct as of Apr 2022

(2) This figure is minus any cashback

(3) Assumes total fees are paid up-front, rather than added to the mortgage balance

(4) This figure takes into account the total fees

As the table shows, the cost of a typical two-year fix green mortgage is currently more expensive than the cheapest equivalent non-green mortgage on the wider market – and this is true across all loan-to-value bands.

For example, if you were looking to buy a £200,000 property with a 25% deposit – meaning you'd need a 75% mortgage – a NatWest two-year fix green mortgage would cost you around £950 more over those two years than the cheapest equivalent non-green mortgage (from Progressive Building Society).

Meanwhile, the table below shows that if you were looking instead to fix for five years on a £300,000 property, a Virgin Money green mortgage at 60% loan-to-value would cost you around £500 more than the cheapest equivalent non-green mortgage over that time (Natwest).

Examples of cheap green and non-green FIVE-YEAR fixed mortgages on a £300,000 property (1)

Loan-to-value Green/Non-green Interest rate + total fees (2) Monthly payment (3) Cost over five years (4)
60% Non-green (Natwest) 2.23% + £875 £783 £47,830
60% Green (Virgin Money) 2.29% + £963 £789 £48,340
75% Non-green (Barclays) 2.25% + £864 £981 £59,685
75% Green (NatWest) 2.27% + £875 £984 £59,845
90% Non-green (Natwest) 2.11% + £1,025 £1,211 £73,650
90% Green (Barclays) 2.75% + £115 £1,246 £74,840

(1) Correct as of April 2022

(2) This figure is minus any cashback

(3) Assumes total fees are paid up-front, rather than added to the mortgage balance

(4) This figure takes into account the total fees

Of course, don't forget that living in an energy-efficient property will also help save money when it comes to energy bills – and every little helps in the current energy crisis (if meeting your energy bill payments is proving difficult right now, our What to do if you're struggling with energy bills guide details what your options are).

Greener properties also have a positive impact on the planet. So don't think this is us saying green properties aren't worth it. Rather, as the table shows, what we're saying is that going out of your way for a green mortgage usually isn't worth it.

And, as mentioned earlier, beyond the energy efficiency of the property itself, there isn't much that's green about green mortgages. In fact, you might feel that a particular mortgage lender's green credentials are so underwhelming that taking out a green mortgage with it would have a NEGATIVE environmental impact overall.

A quick and easy way to get a feel for the best mortgage deals currently on the market – and how they compare to a particular green mortgage deal you've found – is to enter your details into our Mortgage Best Buys tool and see what interest rate you might get elsewhere.

How to apply for a mortgage (whether green or not)

Applying for a green mortgage is very similar to applying for a normal residential mortgage, so there's no need to do anything particularly differently. And in fact – as we showed above – most people should just go for the cheapest mortgage they can get. Here's how to do it...

Step 1: boost your mortgage acceptance chances

Before applying for any kind of mortgage, you should always try to improve your chances of acceptance and prepare yourself for the property-buying process. You can do this by:

  • Reading our First-time buyers' guide. This 55-page PDF talks you through all you need to know about the property-buying process – particularly helpful for those who have never owned before. Alternatively, if you already own a property, read our Remortgage guide.

  • Checking out our Boost your mortgage chances guide. This has got our top tips on how to make yourself more attractive to mortgage lenders.

Step 2: have an offer accepted on a 'green' property (or plan your green home improvements)

If you're a first-time buyer or a home-mover, you'll need to have a property lined up and an offer accepted in order to apply for a mortgage. To qualify for a green mortgage in particular, the property you're buying will need to have an energy performance certificate rating of A or B (though it works differently if you're looking at a green mortgage to carry out improvements to your current home – you'll likely just need to show that the improvements you're planning will make your property more energy efficient).

Step 3: find the cheapest mortgage deal

Once your offer's been accepted, you can start browsing our Mortgage Best Buys tool, which'll give you a benchmark of what kind of deal you might be able to get. Unfortunately, our tool doesn't yet have the function to distinguish between green and standard mortgages, so they'll all show up as standard mortgages (we're working on adding this function soon). However, you'll be able to get an idea of what interest rate you could qualify for.

We recommend then speaking to a mortgage broker. A broker is worth their weight in gold, as they WILL be able to highlight green mortgages for you, as well as indicate whether you could save money by getting a non-green mortgage instead. More details on how to find a good broker are in our Cheap mortgage finding guide.

MSE weekly email

FREE weekly MoneySaving email

For all the latest deals, guides and loopholes simply sign up today – it's spam-free!

Spotted out of date info/broken links? Email: brokenlink@moneysavingexpert.com