Green mortgages
You may already be doing your bit for the environment, but are you aware that you can go even greener when it comes to your most expensive payment – your mortgage? Perhaps you’d like to do your bit for the environment whilst avoiding unethical lenders? The good news is that it’s becoming much easier.
With green issues making the headlines, more and more homeowners are becoming more aware of the environmental impact of their homes, and are switching their mortgages and improving their homes to make them much more eco-friendly. It’s not just about your lender planting a few trees.
So why not do your bit to help reduce climate change and think about switching your mortgage? Not only could you save money, you’ll be doing you bit to save the planet.
How do I know how ethical my mortgage lender is?
The Ethical Investors Group have classified mortgage lenders in terms of their ethical position:
- Category 1
Very few mortgage lenders fall into this category. They are very selective about the sorts of property they will lend on, so the average home would not qualify. The most common properties that loans are made on are derelict buildings and environmentally friendly new-build properties. Ecology is a category 1 lender. - Category 2
These are institutions that operate an ethical policy, or apply some form of environmental criteria to their loans. Their business may be run according to an ethical code of conduct, or they may exclude customers that operate in unethical ways. They may offer special mortgage terms or discounts to borrowers that meet environmental standards on their properties, such as energy conservation. The Co-Operative Bank and Norwich & Peterborough BS are category 2 lenders. - Category 3
These are mutual lenders, such as building societies, and as such are owned by their customers and not shareholders – this is a positive ethical step in itself. Because mutuals do not lend to companies – you can take comfort knowing that your interest payments won’t be used to lend to companies that may act in unethical ways. - Category 4
Includes banks that were once building societies but are now owned by shareholders, and as such are not mutual. If a lender implements a comprehensive ethical policy when dealing with companies it could be moved to category 2, if it chooses not to it will be moved to category 5. - Category 5
This category includes most main banks, or ex-building societies that are now owned by banks. Because they are all different, they are ranked according to how much they contribute to both society and the environment.
The ins and outs of green mortgages
Whilst only offered by a few mortgage lenders at present, lenders that offer green mortgages are certainly becoming much more popular, and its only a matter of time before they become commonplace.
Essentially, a green mortgage aims to reduce the negative impact our homes make on the environment, and they work in one of two ways:
- The lender will make a donation on your behalf to environmentally friendly schemes
- The lender will only lend on properties that will, or already do, benefit the environment
The Energy Efficiency Partnership for Homes (EEPH) came up with a definition of a green mortgage last year:
- A green mortgage offers a financial incentive that encourages the homeowner to buy or work towards a high energy performing home.
- A green mortgage may also offer incentives for other positive environmental features of a new or existing home.
- Encourages customers to buy or work towards an energy performing home.
- It offers one or more financial incentives linked to the home’s energy use.
Financial incentives:
- A lower rate mortgage
- Cashback
- No early repayment charge
- Fee free
- Higher loan to value
- More favourable length of term
There are currently only three main green mortgage lenders to choose from:
- Ecology
- Ecology is dedicated to improving the environment by promoting sustainable housing and communities, and will only lend on properties that provide an environmental benefit.
- It also provides mortgages for energy efficient housing, such as the renovation of derelict properties to make them much more ecological.
- Borrowers do not need to be ‘green’ to take advantage of an Ecology mortgage.
- Ecology’s C-Change mortgage discount gives a 1% discount of the standard variable rate on funds borrowed to install energy efficiency measures or renewable energy systems. These include:
- Installing floor, wall and roof insulation
- Double or triple glazing
- Installing low water-use appliances
- Installing a condensing boiler
- Co-Operative Bank
- As part of its eco mortgage, Co-Operative Bank will make an annual direct donation to Climate Care to offset 20% of an average home’s carbon dioxide production for every mortgage granted.
- Climate Care is an organisation dedicated to combating global warming by reforestation, creating new woodlands in Uganda.
- In 2005, Co-Op paid over £250,000 to offset a fifth of the carbon dioxide arising from their mortgage customers’ homes, effectively neutralising over 50,000 tonnes of carbon dioxide emissions.
- Co-Op will also not invest in companies that repeatedly damage the environment or are involved in fossil fuels or deforestation.
- For house purchases, Co-Op will provide you will a free home energy report along with your valuation to tell you how energy efficient your new home is and how you can improve it.
- Norwich & Peterborough
- Every year for the first five years of its green mortgage, Norwich & Peterborough will plant eight trees on your behalf to help make your home more carbon neutral. These new forests are being created in East Anglia and Lincolnshire by Future Forests.
- The valuation of your home is free, and you’ll get a £500 rebate to make energy efficiency improvements as recommended by the survey.
- Mortgages are available to first time buyers, moving home and remortgages.
Before you begin
- Consider your circumstances first, and choose a lender according to your ethical position.
- If you are considering taking out a green mortgage, think about how you would like to do your bit. Perhaps you like idea of making a donation, or offsetting your carbon emissions.
- Then choose an interest rate payment that fits your circumstances.
What you need to be aware of
- Green mortgages can be typically more expensive than a standard mortgage, unless you want to develop a derelict property for example.
- You may need to have your home assessed to qualify for a green mortgage.
- You may have to make a minimum advance.
What to do next
- Why not calculate your current home’s CO2 emissions?
- Check out our green residential mortgage best buys.
