What is a Green Mortgage?

Green mortgages explained

A green mortgage is one that offers buyers of energy-efficient homes favourable terms for this choice of property, with incentives often including a lower rate of interest or cashback. Essentially, these mortgages reward you for buying an energy-efficient home or making energy-saving improvements to your property.

Green mortgages are most often applicable to new-builds bought directly from the developer or builder, but some lenders will offer similar incentives for older properties, or for homeowners adapting properties they already own to become more energy-efficient.

Each lender will have its own terms and conditions and maximum loan-to-values (LTVs) for green mortgages, though it is likely that your property will need to meet a minimum level of energy efficiency. For example:

• Barclays requires an energy efficiency rating of 81 or above or an Energy Performance Certificate (EPC) at bands A or B. The property must be a new-build and you must be buying it to live in.
• NatWest offers a lower mortgage rate to properties with an EPC at A or B, and offers its deal to remortgagors as well as homebuyers. The maximum LTV is 85%.
• Nationwide Building Society has a minimum efficiency rating of 86 for borrowers to receive £250 cashback, which rises to £500 cashback for properties with scores of 92+. It’s open to buyers or homemovers only, though it also offers a Green Additional Borrowing Mortgage for homeowners to make energy-efficiency improvements to their property.
• The Ecology Building Society offers a discount on the mortgage interest rate based on the improvement made in the property’s EPC rating. This is available for renovations, conversions and self-build properties as well as new-builds.

These are just a few examples, though the principle remains the same – if your property meets high energy-efficiency standards and you meet the lender’s other criteria, you could benefit from a better mortgage deal.

Energy efficiency ratings determine how energy-efficient your property is. The Energy Performance Certificate grades the property from A (most efficient) to G (least efficient), though you may also come across numerical gradings from 0 to 100.

Every property needs an EPC when it’s built, sold or rented out, while new-builds will have a Predicted Energy Assessment (PEA) to give an estimated rating before they’re finished. You can use the PEA in your mortgage application to confirm your eligibility for a green mortgage before the EPC is finalised.

You can check if a property has an EPC using the Government website.

Otherwise for more information on EPC ratings read our guide. 

Relatively speaking. Barclays launched the first green residential mortgage in 2018, and in July 2020 Just Group launched the first green lifetime mortgage. However, they’ve since grown rapidly in popularity, with both building societies and high street banks now offering green mortgages.

For the buyer, the benefits of a green mortgage come down to cost savings, whether it’s in the form of a lower rate or cashback. But these mortgages can also give homeowners the chance to make energy-efficiency improvements to their property, potentially lowering their energy bills (another cost saving) while being better for the environment, and helping the UK reach its target to hit net zero emissions by 2050. Plus, you’re future-proofing your home, as by improving its energy rating now, you could make it more saleable later.

Mortgage brokers can certainly help in your mortgage search, particularly if you’re looking for a more specific kind of deal. They remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and rates that aren’t available to the public, and they’ll know the lenders who are able to offer green mortgages – and crucially, those who would best suit your circumstances. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.

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There’s no set answer to this as the mortgage market is highly volatile, which means interest rates can change quickly. That said, given that some lenders offer lower interest rates to borrowers with energy-efficient properties, green mortgages can potentially offer more competitive mortgage rates, though it’s important to compare the options thoroughly before you make your decision.

Ethical mortgages don’t currently exist as a category but there are ethical lenders offering mortgages, including Triodos and The Co-operative Bank, as well as Sharia’a banks offering house purchase plans. These lenders are committed to responsible lending and don’t use any funds to finance unethical practices, so could be a good choice for those who want to borrow with a conscience.