Eco Mortgages Explained: Benefits, Costs, and How to Get One

Eco mortgages are gaining popularity as more people look to reduce their environmental impact.

If you’re interested in buying an energy-efficient home or making your current one greener, this type of mortgage can offer some attractive perks. 

But what are eco mortgages, and are they really worth it? 

In this guide, we’ll walk you through everything you need to know to decide if a green mortgage is the right fit for you.

What is an Eco Home?

An eco home is a house built or upgraded to be more energy-efficient and environmentally friendly. 

These properties usually incorporate smart features like renewable energy sources, great insulation, and efficient heating systems. 

The goal is to reduce the impact on the planet and save you some money on bills.

Eco homes can be newly built using sustainable materials or existing homes that have been upgraded with eco-friendly features like solar panels, double glazing, or heat pumps. 

Whether new or old, the aim is to minimise the environmental impact and improve energy efficiency – which is good for the planet and your wallet.

Can You Get a Mortgage for an Eco Home?

The good news is that yes, you can get a mortgage for an eco home. 

In fact, with more people becoming environmentally conscious, lenders have started to recognise the importance of offering products that support greener living. 

This is where eco mortgages, also known as green mortgages, come in.

Eco mortgages work like your regular mortgage, except they come with some nice perks for choosing an energy-efficient property. 

These perks might include lower interest rates, cashback, or other incentives – all to make the dream of eco-living a little easier to achieve. 

Sounds good, right? But hang on, let’s break it down further.

Types of Eco Mortgages

Now, there are different types of eco mortgages depending on your plans and where your property fits in the green scale. 

Let’s explore:

1. Buying an Eco-Friendly Property. If you’re buying a new eco home, you can look for an eco mortgage that offers you a lower interest rate or cash back as a reward for going green. Typically, you’ll need to show that the property has a high energy efficiency rating, such as an EPC (Energy Performance Certificate) rating of A or B.
2. Renovating an Existing Property. If you’re planning to take an older home and give it an eco-makeover, some lenders will offer eco mortgages that provide additional funds at lower rates. These funds can be used for green improvements like upgrading insulation, installing a heat pump, or adding solar panels.
3. Self-Build Eco Homes. If you’re thinking of building your very own eco dream home, there are specific self-build mortgages available. These mortgages release funds in stages as your build progresses, which is handy since eco construction can come with higher upfront costs compared to conventional builds.

What are the Pros and Cons of Green Mortgages?

Like anything in life, green mortgages have their ups and downs. Let’s break it down so you can decide if it’s the right move for you.

Pros:

• Lower Interest Rates. Lenders might offer a lower interest rate if your property meets their eco criteria. While this can help reduce your costs, green mortgages aren’t always the cheapest option overall, so it’s important to compare carefully.
• Cashback Incentives. Some lenders offer cashback – a nice little bonus to reward you for going green.
• Energy Savings. A more energy-efficient home means lower bills, so in the long run, you’ll save money every month.
• Positive Environmental Impact. Less energy use means fewer carbon emissions – so you can feel good about doing your bit for the environment.

Cons:

• Higher Costs for Upgrades. If you’re looking to renovate to make your home greener, the initial costs can be quite high. Things like heat pumps or solar panels aren’t cheap, even if they save money over time.
• Limited Lenders. Not all lenders offer eco mortgages, which means your options might be limited, and you may not find the perfect deal.
• May Not Be the Cheapest Mortgage. Despite the perks, green mortgages aren’t always the cheapest overall, as standard mortgage products could have better base rates or fees.

Eligibility Criteria

Eco mortgages aren’t necessarily harder to get than a regular mortgage, but they do come with a few extra hoops to jump through. 

To qualify, lenders will often require your property to have an EPC rating of A or B – in other words, it needs to be energy efficient. 

If it’s an older home that you’re renovating, you may need to prove that your planned improvements will boost its energy performance.

Lenders may also ask for a bigger deposit if your property is considered higher risk, like non-standard construction eco homes. 

Generally, the deposit required might be more than what you’d pay for a standard property – somewhere between 20% and 30% instead of the usual 5% to 10%. 

What is The Difference of Green Mortgages Vs. Standard Mortgages?

In terms of structure, they’re pretty similar – you still borrow money and repay it with interest over time. 

The key difference is that with a green mortgage, the lender is offering you incentives for choosing a more energy-efficient property or making eco upgrades.

Whereas a standard mortgage might be available for any type of property, green mortgages have stricter requirements, like needing an EPC rating of A or B.

It’s all about encouraging greener living by offering benefits that help make those eco choices a bit more attractive.

Are Green Mortgages Cheaper?

The short answer is – not always. 

While lenders may offer lower interest rates or cashback, the overall cost of an eco mortgage can end up being higher than a regular mortgage. 

For example, some lenders might charge higher set-up fees, or the rates might only be marginally better.

It’s also worth mentioning that the costs involved in making a home more energy-efficient – like adding solar panels or upgrading insulation – can be significant. 

But, once these improvements are made, you’ll save on your energy bills, which could offset the extra mortgage costs.

Lenders Offering Green Mortgages

There aren’t loads of lenders offering eco mortgages just yet, but the numbers are growing. 

Here’s a quick rundown of some of the lenders who are leading the charge:

• Nationwide: Offers £500 cashback for properties with an EPC rating of A, or £250 for B-rated properties. Also offers interest-free borrowing for green home improvements, ranging from £5,000 to £15,000 on a two-year or five-year fix.
• Barclays: Offers preferential rates on new-builds with an EPC rating of A or B. Also provides a ‘greener home reward’ of up to £2,000 for existing mortgage holders making green improvements, like installing a heat pump.
• Halifax: Offers £500 cashback for first-time buyers with an EPC rating of A or B, and £250 for home-movers or remortgagers with similar ratings.
• HSBC: Provides up to £1,250 cashback for first-time buyers and home-movers, and up to £1,550 cashback for remortgagers with an EPC rating of A or B.
• NatWest: Offers a preferential rate if you buy or remortgage a property with an EPC rating of A or B. Maximum borrowing is 85% loan-to-value.
• Santander: Offers preferential interest rates for remortgaging properties with an EPC rating of A or B, available through brokers with a loan-to-value between 60% and 85%.
• Virgin Money: Offers a preferential rate for new-builds with an EPC rating of A or B, and cashback of £250 for additional green improvements. Can be used with Shared Ownership.
• Kensington Mortgages: Offers £1,000 cashback for homebuyers and remortgagers improving a property’s energy efficiency within 12 months.
• Swansea Building Society: Provides a fixed percentage discount on its standard rate for properties with an EPC rating of A or B.
• Gatehouse Bank: A sharia-compliant lender offering discounted rates for properties with an EPC rating of A or B, and offsets the carbon footprint of the property during the fixed term.
• Ecology Building Society: Focused on eco-friendly projects, including large renovations and woodland projects. Offers a ‘C-Change’ discount if you prove your property is energy efficient. Interest rates are generally higher, but it’s one of the few genuinely green lenders.

How To Get a Mortgage?

If you’re ready to go green, getting an eco mortgage works similarly to any other mortgage. 

Here’s a quick guide:

1. Check Your Credit Score. Make sure your credit score is in good shape. This will help you qualify for better rates.
2. Save for a Deposit. Most lenders require a deposit of at least 5-20%. The higher your deposit, the better your options.
3. Get a Mortgage Agreement in Principle. This shows how much a lender is willing to lend you and helps you know your budget.
4. Choose the Right Mortgage. Compare different mortgage types and lenders. You may want to work with a broker to find the best deal.
5. Complete Your Application. Once you’ve chosen the mortgage, submit your full application along with the required documents.

Want more detailed guidance? Check out our complete guide on mortgage applications in the UK.

The Bottom Line

Eco mortgages are a great way to help make your home greener while potentially saving a bit on mortgage costs. 

However, they’re not a one-size-fits-all solution, and they aren’t necessarily the cheapest option available. 

That being said, if you’re passionate about reducing your environmental impact and are willing to put in the effort, an eco mortgage could be a fantastic fit for you. 

Just remember to crunch the numbers, weigh the pros and cons, and, if in doubt, speak to a broker who knows the green mortgage world inside and out.

Get in touch with us and we’ll match you with a qualified mortgage broker who can help you find the perfect eco mortgage deal for you.