“Green mortgages” set to become the norm in future lending market


Only a few lenders currently offer better rates on eco-friendly properties in the UK. But as the trend for green mortgages grows, could it be an added incentive to investors to focus on green credentials?

As the world becomes increasingly eco-conscious, green mortgages are growing in popularity. They offer borrowers preferential rates directly linked to the energy performance of their properties. As a result, it gives homebuyers and investors an extra impetus to look at newer, more eco-friendly properties to keep costs down.

New research from the Intermediary Mortgage Lenders Association (IMLA) delves into these products further. It looks at how appetite in this niche segment is growing, including in light of lifestyle changes through Covid-19. Additionally, the research discovers some of the barriers affecting take-up of such products, as well as the government’s role.

Kate Davies, executive director at IMLA, says there are plenty of indicators that “greener” products will increase in number.

“Lenders and advisers are already recognising the opportunities presented by green mortgages as consumers ‘switch on’ to eco-friendly products and recognise the devastating potential of climate change.”

“Now, with a Covid-19 lockdown giving us all a temporary view of a world with reduced carbon emissions, the growth of the green mortgage market could accelerate yet further.”

Green finance could become mainstream

The IMLA found that almost three quarters (74%) of lenders think green mortgages will become a bigger part of the finance sector in the future. A further 13% said they had already seen a rise in interest from customers since the Covid-19 outbreak.

The reasons for the growing interest in these products is varied. While some are attracted by improving their own carbon footprint, for others it is the financial side.

According to the figures, around a fifth of homeowners said they’d pay £100 more a month to be more eco-friendly. On the flip side, living in a more environmentally friendly property comes with its own cost savings. More than half (53%) of consumers are driven by saving money on energy bills. But a further 43% like the idea of becoming more “green” as a lifestyle choice.

There are still a relatively small number of lenders offering green mortgages. However, the survey showed that 29% of lenders plan to or have launched such a product. Around a third (35%) of intermediaries also plan to advise clients on green mortgages in the future.

Issues facing the market

A lack of awareness of green products is currently one big barrier to the sector. The IMLA research found a huge 43% of borrowers had never heard of this segment of the market. A third of borrowers also thought green mortgages would be more expensive, which is not the case. In fact, around 77% of lenders plan to launch or have launched a green mortgage that is the same price or cheaper than a standard product.

Another issue when it comes to eco-friendly properties is the cost of going green in the first place. Around 27% of property owners say affordability is a problem for them. Improving a property’s energy efficiency can be costly, and for property investors may not seem worth the expense.

Government intervention will therefore play a big role in the future. The Green Homes Grant is certainly a positive for the sector, but more could be done to help lenders offer green mortgages, says IMLA.

Kate Davies adds: “Despite the potential for green mortgages to be an ever-present option for customers, the issues and barriers surrounding these products are much wider than the UK mortgage market.”

“The government has already committed to making Britain a carbon-neutral nation by 2050. Upgrading the UK’s existing housing stock, to make homes across the country more energy efficient, will be critical to that goal.”

Invest in a new-build to save money

The most energy-efficient properties in the UK tend to be new-builds. More than 80% of new-build homes are A or B-rated in their EPCs. However, this figure is growing with the government’s focus on reducing the environmental impact of the country’s housing market.

While new-builds are sometimes more expensive at the outset than the equivalent second-hand home, living costs can be significantly cheaper. One study by the Home Builders Federation (HBF) found that bills can be as much as £629 less per year in new properties. This is highly relevant to property investors buying properties for rental, as it can be a huge selling point for tenants.

Read this article for a more detailed list of the benefits of buying a new-build for both homeowners and investors.

At BuyAssociation, we have a number of property investment opportunities including new-builds and newly converted properties. Get in touch to find out more, and sign up for free early access to deals. 

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“Green mortgages” set to become the norm in future lending market


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