Those with energy efficient homes could soon be taking out up to £ 12,000 more on their mortgage from a lender – data shows the number of green mortgages available has increased fivefold since April.
The data provided by broker Property Master for This is Money shows that the number of green mortgages, for both mainstream residential property and rent-to-own, has increased from just 78 products in April to 400 now.
Green mortgages reward borrowers for a good energy performance rating by lending them more money, lowering fees or giving them a better interest rate depending on their income.
Go green: Green mortgages reward those whose homes are energy efficient
To encourage people to buy greener homes or to retrofit existing homes with greener improvements, the Monmouthshire Building Society is in the process of recalibrating their affordability calculator to allow those EPC A or B rated homes to borrow more than those rated D. -Rating, E, F or G.
The average EPC rating for homes on his books is a D.
Monmouthshire is currently testing the new concept in two new build locations in Wales, telling This is Money that those in the top two groups could borrow up to £ 12,000 more than those in underperforming properties.
Most lenders use government data on average energy bills to factor in a home’s running costs, but this general data doesn’t always accurately reflect a home’s real running costs.
Owning a more efficient home costs less and theoretically leaves the owner with more disposable income that could be used for higher mortgage repayments.
Some mortgage experts say this type of lending is long overdue.
“From a borrowing perspective, it is only right that a customer who buys a property that costs less to run each month should be rewarded in the affordability assessment,” said Matt Coulson, director of broker Heron Financial.
“If they don’t have to put as much of their income aside to pay utility bills, they should have more to pay for their repayments.”
Adjustments like solar panels can improve the chance of earning an Energy Pass rating of C or higher and potentially qualifying for a green mortgage
Most existing green mortgages require the borrower to find and apply for a specific “green” product.
If Monmouthshire rolls out the new calculator for all of its lending operations, it could be the first to consider a low EPC rating, regardless of which product the customer has chosen.
Monmouthshire made the decision after being involved in Valuations And Lending Underwriting Energy Reduction, or ‘Valuer’; a group of real estate organizations, including Rightmove and the Royal Institute of Chartered Surveyors, looking for ways to link energy efficiency to mortgage loans.
Graham Sumsion, Loan Operations Manager at Monmouthshire Building Society, says, “The problem we are facing is that energy-efficient new buildings are more expensive to build and therefore sell more expensively, which narrows the market for them.” since people cannot get a large enough mortgage.
“But lenders might consider mortgaging these homes more heavily because buyers’ bills will be low.”
Property Master’s data shows the 400 green products are offered by 19 lenders, with the majority of high street names represented.
Their motives for doing so are not entirely altruistic, however, as political changes are looming on the horizon that will put pressure on both individuals and businesses to reduce their environmental impact.
Angus Stewart, Chief Executive of Property Master, says, “Basically what we see here is that lenders are putting themselves in a position to meet the requirements of the government’s net-zero policy, which includes a requirement for all domestic real estate, an EPC of C. or higher by 2035.
“Mortgage lenders are expected to ensure that the average energy efficiency of their domestic portfolios is at least EPC C by the end of 2030.”
Is It Enough To Make Homeowners Green?
Under pressure to balance their books, more lenders are likely to incentivize those with good EPC ratings on board.
This is good news for those who already own energy efficient properties.
Borrowers are unlikely to choose “green” real estate just because they might have access to a slightly lower interest rate
Mortgage Broker Gerard Boon
But since the prices of eco-friendly new builds and the cost of retrofitting things like air heat pumps are still very high, some experts don’t believe that a slightly higher mortgage or slightly cheaper interest rate will be enough to convince homeowners to buy a greener home or do significant renovations.
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“Borrowers are unlikely to choose ‘green’ real estate just because they might have slightly lower interest rates or slightly higher affordability.”
However, when combined with other motivational factors such as cheaper bills and lack of renovation needs, it can have a bigger impact.
What about those who can’t afford to modernize their homes?
Ultimately, the supply of green homes is still very limited and there are fears that those in older properties will be unfairly punished if lenders continue to offer preferential treatment.
Katie Brain, Defaqto’s mortgage expert, says: “On the one hand, this could mean that borrowers buying a low energy home can take out more loans, which can be attractive when real estate prices are high.
“But what about those who can’t afford the price of newer, lower-energy properties? This could be seen as punishing people. ‘
Incentives aside, the cost of buying a low energy home will be too high for some. The prices are often higher than for older properties and retrofitting can also be expensive
Monmouth says it is interested in helping people with the cost of retrofitting their homes by providing more advance loans on their homes at a low interest rate.
“We’re particularly interested in helping our members buy homes on net-zero websites, but we also want to help existing homeowners improve their properties,” says Sumsion.
“As part of the pilot project, we looked at customers’ homes and created a way for them to make their homes CO2-free.”
While this may help some people on their way to being more energy efficient, taking out a loan is still a big question when the exact cost benefits are unclear.
Although growing rapidly, the green mortgage sector is still in its infancy and little information is available on the public’s appetite for such products.
There may be a big boost from banks, but whether the average homeowner will bite remains to be seen.
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