Could green mortgages become a thing?

Written by Lisa Stanley Mann on 18th Apr 2018

Barclays, a bank not known for its commitment to a greener planet in the past, is working on flowering up its image.

First, there was the launch of its multi-impact growth fund, allowing investors on its platform to enjoy profits from some of the best impact funds in the country.

Now, there’s a green mortgage.

It’s worth bearing in mind, before we get too excited, that Barclays is still involved in financing the controversial Trans Mountain Pipeline Expansion Project in Canada, according to Banktrack, the campaign group. So how seriously can we take its new, so-called Green Home Mortgage?

And how can a mortgage, something you borrow rather than something you lend or invest, be green? You may wonder.

The idea is that homeowners with the most energy efficient homes should pay the lowest mortgage rates.

But the scope of the Barclays move is limited and only for those buying energy efficient new-build homes from housebuilders including Berkeley Group, Crest Nicholson, Countryside Properties, Redrow and Barratt Homes.

One reason this could make sense commercially for the bank and the builders, in theory, is because lower energy bills will enable the borrowers to meet the higher monthly repayments, they can borrow more (to buy the more expensive new-build houses).

It also makes sense for the UK’s ambitions to reduce carbon emissions, as our old housing stock that leaks heat is one of the biggest culprits of emissions on these shores.

However Paul Ellis, chief executive of Ecology Building Society, which offers discounts to homeowners of eco self builds and other energy efficient homes, was sceptical about the scope of the impact of Barclays’ move. He said:  “There’s no reason to think that this tie-up with the large housebuilders will do anything more than provide a modest reduction in mortgage payments for some new-build homes that were already going to be built. So this initiative may prove to be little more than a small initial step on what needs to be a permanent and committed journey.”

The Government set up a Green Finance Taskforce, including members from Abundance Investment, Aviva and Legal & General, designed to find ways that the financial services industry can contribute to a greener UK economy.

Green mortgages is one key area the taskforce has been considering, where homeowners with the most energy efficient homes not only benefit from lower energy bills, but cheaper mortgage rates. This could make sense for lenders that do not follow the Barclays model of tying up with big housebuilders, because as well as the lower outgoings on energy bills freeing up income for borrowers to borrow more, those homes with higher energy efficiency should also be more valuable over time, reducing the risk to lenders of loss.

Mr Ellis said: “Following publication of the Green Finance Taskforce’s recommendations, the Government needs to grasp the opportunity to support the green mortgage market further, with meaningful incentives for people to build or retrofit their homes to a high energy-efficiency standard.

“All our lending already takes green factors into account so we welcome the proposals to increase the visibility of energy efficiency ratings during the mortgage process. We are also encouraged by consideration of radical measures such as stamp duty reform which would help spur homeowners to take action.”

How the Barclays green mortgage works

Every home must have an Energy Performance Certificate (EPC) when it is built, sold or rented – this gives the property an energy efficiency rating from A or 100 (most efficient) to G or 0 (least efficient) and is valid for 10 years.

New-build homes will also have a Predicted Energy Assessment (PEA) before they are finished – if you buy through one of Barclays “partner” housebuilders, the property could be eligible for a Green Home Mortgage.

Interested homeowners apply for a Barclays mortgage in the usual way, considering the bank’s normal range of deals, then apply for an Agreement in Principle (AiP). You’ll need to provide the PEA or EPC from your house builder at a meeting with your mortgage adviser, and then the bank will check whether you can get a Green Home Mortgage1.

If you don’t have one of these certificates but think your home might be eligible, contact your housebuilder to check the rating and request a PEA or EPC.

If the home you want to purchase has an energy efficiency rating of 81 or above, or is in energy efficiency bands A or B, you could get lower rates on certain fixed rate mortgages.

Do you live in an energy efficient home or would you like to fund an energy improvement project to your home? Check out Ecology’s range of mortgages here.

If you want a home loan from a more sustainable lender but wouldn’t qualify for either an Ecology or Barclays deal, try Nationwide, Co-op Bank, or one of the building societies – they tend to score more highly than big banks for making a positive environmental and social impact.

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