Green mortgages - what are they for and how can you get one?
Lower rates are attractive to any buyer but the prospect of owning a home built with the environment in mind could also be the reason why first-time buyers are enquiring about green mortgages.
We’re going to explain what green mortgages are, why they have lower rates and why you should never apply before seeking advice from an expert.
What is a green home mortgage?
Some UK lenders provide discounted rates to borrowers buying eco-efficient properties which are usually, though not always, New Builds.
It is hoped that offering green mortgages with lower interest rates will encourage people to buy or make their homes more energy efficient.
Are the rates lower on green mortgages?
The rates offered on these types of mortgages can vary between banks and lenders but depending on your circumstances, you may be able to access lower rates which could reduce the amount you pay for your mortgage overall.
New Build homes are often built using technology and eco-friendly materials that can help to reduce the carbon emissions released as waste from a property. Because of this many people find that their bills are lower and therefore more affordable in a New Build.
This is good news for borrowers and lenders as affordable bills could make paying back a mortgage more manageable.
Do I have to be a first-time buyer to qualify for a green mortgage?
No, you don’t have to be a first-time buyer to qualify for a green home mortgage with the current UK lenders offering this type of product, however, our advisors will always check for you ahead of recommending one.
Most green lenders require their borrowers to purchase the property to live in, so if you’re thinking of getting a green mortgage for a buy-to-let property, it could be helpful to ask a broker what your other options are.
What makes a New Build property energy efficient?
Built with construction methods that limit waste
Energy efficient materials used wherever possible to minimise carbon emissions
The design usually features double or triple glazing filled with argon gas
Quality insulation in the roof and walls
Most New Builds have boilers that only give out hot water when needed
Modern water drainage systems
Can I get a green mortgage for eco-friendly property renovations?
Research by Citizens Advice and the Energy Savings Trust has revealed that 36% of British households haven’t made any changes to the way they use energy in recent years, which means that currently there are a lot of older properties emitting more carbon than they ought to.
In fact, emissions from the UK housing sector currently account for 25% of all UK greenhouse gas emissions.
In response to the Government’s Green Finance Taskforce, which supports and recommends clean growth in the mortgage market, some lenders may also offer mortgages for energy efficient improvements for current homes.
We’re happy to help if you’d like further information about your eligibility for a green home improvement mortgage, so feel free to send us a message.
What should I do before I apply for a green mortgage?
Check your credit score
Lenders use your credit score as a tool to assess your eligibility for a mortgage. Having recent and severe forms of credit such as bankruptcy, can make some lenders apprehensive about lending large amounts of money to you. Knowing what lenders can see when assessing you can help you prepare and even improve your credit score.
Address your debt
If possible and affordable, try to reduce your debt. There are lots of free services including Citizen’s Advice, that have great tips on reducing debt and managing debt-related stress.
Get your documents in order
There are a few things you’ll need to apply for a mortgage in the UK including a photo ID in the form of your passport or driver’s licence and up to three months’ bank statements (though some lenders may require up to two years in some circumstances.)
Green mortgages for employed applicants
If you’re employed, you’ll need your payslips. Most lenders will ask for 3 months to a year’s payslips, though there are exceptions to this rule. Some lenders will be more understanding than others when it comes to applicants who have recently started a job and may ask for proof of employment to determine whether they will loan to you.
Green mortgage for self-employed applicants
If you’re self-employed, you’ll need your tax returns which may need to be signed off by a chartered accountant. Some lenders require three years of tax returns though two years may be acceptable in some cases.
Am I eligible for a green mortgage?
You should also check your eligibility for a green mortgage ahead of applying to avoid a mortgage rejection as this could affect your credit score and prevent you from making a future application.
A mortgage broker can look at your circumstances and take the time to learn what it is you want and need from your mortgage. This is how our team is able to find the most suitable lender, improving the likelihood that your application will proceed without delays.
Where can I find green mortgage lenders?
Although the choice of green lenders is limited, there are a select group of banks that are still providing green mortgages and our brokers have access to the latest rates and product information.
Green mortgage lenders will want to know the Predicted Energy Assessment (PEA) of the property you intend to buy so they can confirm whether or not it meets their requirements.
The likelihood of you obtaining a green mortgage is based on your ability to meet your chosen lender’s criteria and this is something that a professional broker can help you with.
They know the usual factors that can cause delays or mortgage rejections and can provide you with clear and actionable advice.
