If you are thinking about buying an environmentally friendly home, or making your current home more energy efficient, a green mortgage could help you bag some cashback or a cheaper mortgage deal.
These home loans are designed to improve the appeal of properties that have features such as improved home insulation – double glazing and draught proofing, for example – solar panels and modern central-heating boilers that use less gas.
The resulting reduced use of energy powered by fossil fuels means lower carbon emissions, benefiting the environment, while the borrower should gain from lower energy bills as well as the incentives offered by the lender.
In this article, we break down:
- What is a green mortgage and how green is it?
- Which homes qualify for a green mortgage?
- Is a green mortgage worth it?
- Will green mortgages be worthwhile again?
- How else can I use my money ethically?
What is a green mortgage and how green is it?
A green mortgage is a way for banks to reward those who purchase energy-efficient homes, or make improvements to their existing homes that increase their energy efficiency.
However, it’s important to note that a green mortgage is not green in itself. They are generally provided by lenders that invest heavily in industries harmful to the environment, such as fossil fuel production, construction and farming.
See how you can use your money for environmental benefit.
What’s in it for banks and building societies?
Investing in environmentally friendly homes gives lenders a degree of future-proofing: reduced energy costs for borrowers will provide some safeguards for their ability to keep on meeting their mortgage repayments; and the homes on which the lenders have advanced green loans may be more likely to retain their value as environmental awareness gains momentum.
Which homes qualify for a green mortgage?
An energy performance certificate (EPC) measures how energy-efficient your home is. It assigns a letter between A (the most efficient) and G (the least). Newer homes tend to be far less energy-intensive as they are built with more modern materials, while older homes tend to require more carbon-emitting energy to heat up.
EPCs are required whenever a house is built, bought or sold. If you aren’t sure what the energy rating of your home is, you can check online using the Gov.uk database. If you are in Scotland, you can use the Scottish register.
If your home has an EPC rating of A or B, or you are buying one that does, some mortgage providers will give you cashback or a lower rate of interest.
What home improvements can I make to qualify for a green mortgage?
Some examples of home improvements you can make to increase your energy efficiency – and therefore qualify for green mortgage perks – are double-glazed windows, solar panels or installing a more energy-efficient boiler.
How do I apply for a green mortgage?
Applying for a green mortgage works in the same way as for any other home loan. Head to our mortgages page to find out everything about this market including Is now a good time to remortgage? and Seven tips to help you get a mortgage.
What green mortgages are available?
Among a growing number of providers in this area, five big lenders offer green mortgage products or benefits.
| Provider | What they offer |
| Barclays | A lower mortgage rate for new-build properties with an EPC rating of A or B, bought directly from a builder or developer, plus up to £2,000 cash for existing customers that make green home improvements |
| Nationwide | £500 or £250 cashback on mortgages for properties with an EPC rating of A or B, respectively |
| NatWest | A lower mortgage rate if you buy or remortgage a property with an EPC rating of A or B (the maximum you can borrow is 85% loan to value) |
| TSB | A lower interest rate on extra money borrowed to make energy-efficient home improvements, as long as you are an existing TSB mortgage holder |
| Virgin Money | A lower mortgage rate if you buy a new-build property with an EPC rating of A or B (max 85% LTV), or £250 cashback if you are an existing Virgin Money mortgage holder borrowing at least £2,500 from it to make energy-efficient home improvements |
A host of smaller lenders also offer similar benefits. Contact your mortgage provider to see if it has any green deals for which you may be eligible.
Is a green mortgage worth it?
With the mortgage market in an extreme state of volatility, amid rising interest rates and inflation, home loans have become more expensive across the board – and this has also affected green mortgages.
“The increase in [the number of] green mortgages is desirable and helpful, but it’s important that borrowers don’t simply go for a deal because it’s badged as green,” says David Hollingworth from the broker London & Country Mortgages.
“They should shop around to make sure they get the best rate from across the market, and not assume that green deals will necessarily be the lowest rate on offer.”
Cheap mortgage deals are increasingly rare at the moment, but you can find them if you know where to look – check out our mortgage comparison tool to see what rates are available to you.
Currently, you can mostly find cheaper standard mortgage rates with other providers. For example, at the time of writing, Barclays’ cheapest two-year fixed-rate green mortgage costs 5.78% (90% LTV, £0 fee).
Meanwhile, Coventry Building Society offers a two-year fixed mortgage at 5.45% (60% LTV, £999 fee). This deal would save you nearly £50 a month in repayments compared to Barclays’ green mortgage.
It’s worth noting, however, that Virgin Money does offer relatively competitive green mortgage rates, with a green two-year fixed rate mortgage at 5.54% (65% LTV, £995 fee).
While this is still more expensive than some of the cheapest mortgages out there, depending on your circ*mstances it may be the best rate available to you if you qualify for a green mortgage.
Additionally, because home loans are now much more expensive in general, any cashback you might get on a green mortgage may be outweighed by the savings you’d earn on a cheaper standard mortgage deal.
“Eligibility for a green mortgage is for people who have an EPC rating of A or B.” explains Michael Kallaras, managing director of Green Mortgages.
“Those who fall out outside of that bracket would be required to make improvements to their property, “retrofitting”. The problem with this is that the cost of retrofitting some properties will far outweigh any potential saving from a utilities perspective and certainly from a “green mortgage product” saving.
“The savings for green mortgage products in comparison to a normal product are minimal – 0.1% in some cases or nominal cashback amounts. Further work is needed to incentivise people whose homes aren’t energy efficient.”
Everybody’s circ*mstances are different, and a green mortgage in special cases may be cheaper than others available. You should consider speaking to a mortgage broker to find out more about the rates available to you, and whether or not a green mortgage is likely to be the best option.
The pros of green mortgages
- You can save money on mortgages from several providers, such as Barclays, NatWest, TSB and Virgin Money.
- You can benefit from cashback to fund home improvements; Nationwide and Virgin Money are among lenders that offer this.
- Green mortgages can be a good incentive to make your home more energy-efficient, saving you money on heating your home, as well as being environmentally beneficial.
- When mortgage markets are calmer, you are more likely to save money by opting for a green mortgage deal.
The cons of green mortgages
- In most cases, you can find cheaper mortgage deals at the moment by searching the market or speaking to a broker, instead of choosing a green mortgage.
- Not everybody can qualify for green mortgages, as you need an EPC rating of A or B on your home.
- The mortgages themselves are not “green” – often, they are provided by lenders that invest heavily in fossil fuels and other industries that cause harm to the environment.
Will green mortgages be worthwhile again?
Possibly – it depends on what happens in the general mortgage market. The Bank of England is set to keep on increasing the base rate in an attempt to tackle rising inflation – from 3% now to an expected peak of 4.5 to 4.75% next year. This would lead to further increases in mortgage rates, also affecting green mortgage products.
The Bank has forecast that inflation will start falling in the middle of 2023, which theoretically means it will be able to lower the base rate – in turn offering the prospect that big lenders may be able to offer more competitive rates on green mortgage deals, and they may become financially worthwhile.
How else can I use my money ethically?
There are multiple ways to ensure your money has a more positive impact on the environment. First, Ecology Building Society offers a range of products – including savings accounts that invest your money in green projects, and specialist mortgages for “eco renovation” or “eco new build” projects.
Second, National Savings & Investments offers a green savings bond, which offers you 3% interest on your savings for three years. Money you save with it will be used to help fund projects focused on helping the environment, such as wind farms and public transport initiatives.
If you are looking to get even more out of your money, check our Guide to ethical investing, which can give you peace of mind that your cash is being used for projects that align with your views.
Ethical investing can also give you some decent returns, and help you beat current savings rates, which don’t come close to inflation – though as with any investment, your money can lose as well as gain value.
Important information
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