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Kevin Spear shares his expertise on green mortgages, answering some commonly asked questions.
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What is a green mortgage and how do they work?
Put simply, a green mortgage is a mortgage product specifically for properties with ‘green credentials’ – king of which is the EPC rating, which summarises the energy efficiency of a building. Generally such buildings have environmentally friendly features such as high quality insulation, ground source heat pumps, solar panels, highly efficient boilers and more.
The green mortgage space falls into two camps at the moment. There’s quite a big push on the Buy to Let side to have more environmentally friendly properties, and the main reason for that is there’s a lot of old housing stock in the UK which are inefficient and in need of modernising. In fact, landlords have been pushed to update properties to be greener via legislation that will begin to apply from 2025, whereby all newly rented properties will be required to have an EPC rating of C or above. Currently properties only require an EPC rating of ‘E’ or above. Existing tenancies will have until 2028 to comply with the new rule changes.
The EPC rating is pushing lenders to develop green mortgages in the Buy to Let space. EPC ratings of A to C are the top 3 ratings and many lenders in the Buy to Let space are moving towards offering their best rates to those properties in that A to C EPC rating, because the properties are deemed to be a better quality.
On the residential side for a first time buyer, for example and typically for new properties, it’s currently a marketing tool for developers to offer an environmentally friendly property. This includes things like solar panels, particular types of insulation in roofs, and particular heating systems. This labels them as ecological builds attracting green mortgages, which are becoming widely available. For older properties, these are less common unless particular alterations have been or are being made, including things like heating systems. Ground source heat pumps are quite popular in the West Country. For older properties, these are less. A green mortgage or a remortgage is therefore seeking to offer a cheaper rate or cashback, which is the attraction for the borrower. It’s akin to what they’ve been doing in Northern Europe for a long time, so a welcome change across the board.
Are green mortgages available to first time buyers?
We see new build sites popping up all the time and I’m sure that these new houses incorporate some of this. There is a set of criteria that a lender will have in order for a property to qualify for a green mortgage new build. Properties have to have car charging ports on the new builds here in Bristol. These are the sorts of things that tick boxes for a lender on the green mortgage side.
Not necessarily just first time buyers, but particularly people buying new builds are going to be in the market for green mortgages.
How will green Buy to Let mortgages work?
We will be building a presence on our social media platforms and online through a new campaign. This will aimed at letting landlords know that new legislation surrounding green Buy to Let mortgages is coming, and to let them know there are a number of options in terms of how to fund the required upgrades.
If we have done the advice in the first place, typically landlords will be in a limited company with their property portfolio. Therefore, raising money in a cost-effective manner in order to do what are essentially refurbishments, is going to be quite different to if it’s an individual, and there are also different tax treatments to consider.
There is a significant piece of advice around how you borrow the money and where from in order to comply with the legislation (at the time of recording this in July 2022). I would definitely say if you are a landlord and you have a property portfolio, and you’re facing what could be fairly significant investments of money needed to comply, you should speak to your mortgage broker.
There are options out there and they range from short-term finance to a complete remortgage package, so the sooner landlords start to look at these options, the better off they will be in the long term.
Do many mortgage lenders offer green mortgages currently (July 2022)?
How does the mortgage application process work for a green mortgage?
Both in terms of the residential and the Buy to Let options, all the usual caveats around affordability and valuation apply. It’s just a question of us doing the research and finding the most suitable product. If the house qualifies as a green mortgage, we’ll find you the most suitable green mortgage. Advice is based on personal circumstances and suitability.
Will the criteria be the same and how much can I borrow?
Beyond the green credentials of the property, it’s exactly the same criteria, but the green mortgage typically seeks to offer better rates and a lower cost.
Do you think all mortgages will go green in the future?
I think the nature of the housing stock in this country is such that we won’t have exclusively green mortgages for many, many years. If you consider the number of rural properties and post industrial revolution properties in inner cities and the suburbs, it’s simply not viable that lenders will only lend green mortgages. In another hundred years time, who knows.
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