The UK housing market is seeing the development of green mortgages – a type of loan tailored for buyers of energy-efficient properties.
Barclays was the first UK lender to launch a green mortgage in 2018, which is only available for homes with an energy rating of A and B.
As it stands the Barclays Green Home 5-year fixed rate stands at 3.14% and comes with no fee.
NatWest has gone further by launching a 2 and 5-year fixed rates between 60% and 85% LTV, with rates starting at 1.33%. This comes with a product fee of £995 and £250 cashback.
Both of these options demand that customers buy properties with an Energy Efficiency Rating of A or B, along with an accompanying Energy Performance Certificate.
New builds can get a Predicted Energy Assessment depending on the housebuilder.
Customers can get a green mortgage with Barclays if they’re buying a new build with Barratt Homes, Bellway, Berkeley Group, Bloor Homes, Bovis Homes, Countryside Properties, Crest Nicholson, Fairview, Kier Living, Linden Homes, Miller Homes, Persimmon Homes, Redrow and Taylor Wimpey.
While these mortgages are both quite competitive in terms of rate, they aren’t much cheaper than other deals.
For example Barclays’ Great Escape: 5-year fixed mortgage costs 3.15%, just 0.01% more expensive than the equivalent Green Home mortgage.
However in the future, when more lenders start offering green mortgages, it seems likely these products could become increasingly competitive.
It’s not just good for the environment to have green mortgages; it makes sense from an economic perspective too.
This is because living in more energy-efficient properties can lower the cost of heating, meaning the customer’s expenditure should be lower.
In a roundabout way, therefore, it makes the buyer a safer bet for a mortgage lender if they live in a property with an Energy Efficiency Rating of A or B.
Barclays seems to expect green mortgages to be a big part of future strategy, as the bank launched a fresh £400m green bond at the end of October, which will be allocated towards financing mortgages on energy-efficient properties in England and Wales.
Meanwhile, NatWest has pledged to make 50% of its mortgage book at or above EPC C, or the equivalent of C by 2030.
The strategy of these lenders is somewhat mirrored by the government, which pledged to upgrade all homes in the UK to Band C standard by 2035.
There is still work to do, however.
Last autumn in England just 3% of existing properties earned an A or B rating, while 83% of new builds did.
It’s early days for green mortgages, but if you’re thinking of buying a new build it’s clearly an option worth discussing with your broker – while it’s likely to become an increasingly attractive choice in the years ahead.