Green Mortgages – A Piece In The Energy Bill Crisis Jigsaw?

With the Energy Efficiency Infrastructure Group calling on the Government to prioritise energy saving through home improvements as the UK faces an energy bill crisis, ‘green’ mortgages could be another piece in the jigsaw to ensure the country’s housing stock is more environmentally friendly.

Last year, the market price for natural gas skyrocketed, with household bills averaging £1,277 a year for a dual-fuel bill – which is expected to increase to around £2,000 following the next review.

With Britons experiencing the coldest and leakiest houses in western Europe, leaving them exposed to gas price rises, the Government is under pressure to provide a solution to rising costs and save UK households hundreds of pounds a year.

Making your property more energy-efficient and the Government’s net-zero strategy

Making improvements to a property’s energy efficiency is not only great for the environment but also helps reduce energy costs. Each property in the UK has an energy efficiency rating, which is a measure of the overall efficiency of a home. The higher the rating the better, as it will lower the house’s fuel bills.

The Government recently set out its net-zero strategy, which details how the UK will deliver on its commitment to reach net-zero emissions by 2050. In connection to this, it is also exploring plans to link mortgages to green home improvements.

Under this plan, home buyers could be asked to carry out improvements to make their homes more efficient. The Government is also working with mortgage lenders to support buyers and owners in improving the energy performance of properties through schemes such as green mortgages.

What is a green mortgage?

A green mortgage offers property buyers a preferential deal if they buy an environmentally-friendly home or make energy-efficient improvements to their home. There are three main types of green mortgages:

• Mortgages that offer a lower interest rate;
• Standard mortgages that offer cashback; and,
• Mortgages that offer cheaper rates or cashback when people make energy-efficient improvements.

While green mortgages are generally associated with new-build homes, they are also available for properties that have been renovated to meet high-efficiency standards, and certain lenders have already introduced green mortgage products offering a discounted interest rate on homes that have an EPC rating of A or B.

What type of improvements can be made to a property?

As a property buyer or owner, there are certain changes that can be made to make it more energy-efficient and, consequently, eligible for a green mortgage:

1. Find an alternative to a gas boiler: All newly built homes will be banned from installing gas and oil boilers by 2025. Therefore, installing an air source and ground source heat pump could be a good alternative.
2. Insulate walls, roofs and floors: About a third of all heat lost in an uninsulated home is lost through the walls, so one of the most effective ways of cutting emissions is through insulation.
3. Replace or adapt windows and doors: One easy way to do this is by installing double glazing, which will help reduce both heat loss and the carbon footprint.
4. Draught-proof: This is one of the cheapest yet most efficient ways to save energy as draughts are commonly found around windows, doors and lofts. To stop door draughts, for example, use a letterbox flap or brush as a low-cost but effective way to maintain heat.

Making the UK’s housing stock more environmentally friendly is vital if we are to meet climate change obligations. While the government’s green home scheme is a step in the right direction, it raises concerns about the impact it will have on home buyers and lenders if they’re not willing to lend on less efficient properties.

The risk of not being able to meet the requirements of a green mortgage, or having a home loan rejected, could result in owners having to spend a lot of money on improving their home’s energy efficiency, which some may struggle to do.

According to a study by Nationwide Building Society, the average cost of making these improvements for a single property is around £8,100. However, for properties with a poor rating, F or G, this increases dramatically to around £25,800, meaning it’s crucial for banks and other lenders to be committed to helping ensure that no one is left behind.