Are green mortgages more expensive? Rates, costs and benefits explained

What is a green mortgage?

A green mortgage is a mortgage that offers perks for buying or owning an energy-efficient home. Depending on the lender, you might get a lower interest rate, cashback or another incentive.

Your home’s Energy Performance Certificate (EPC) rating often helps determine whether you qualify. Some lenders offer green deals for homes with a rating of A or B, so it’s worth checking the criteria before you apply.

You might also come across something called a green further advance. This is a bit different. Rather than rewarding you for buying an energy-efficient home, it lets you borrow extra money on your existing mortgage to pay for improvements like insulation, or a more efficient heating system.

Are green mortgages more expensive than standard mortgages?

Not necessarily. Some green mortgages offer lower rates, if your home meets their energy-efficiency requirements. Others charge similar rates to their standard mortgage deals.

Before deciding, check the arrangement fees and any other charges. A mortgage deal with a lower interest rate might not be the cheapest option once you factor in the fees, while cashback could help offset some of the cost.

The key is to compare the overall cost of each mortgage over the deal period, rather than focusing on one perk. That way, you’ll get a clearer idea of which option offers better value.

The benefits of a green mortgage

Buying an energy-efficient home could come with benefits beyond keeping your energy bills down. Some extra benefits include:

Potentially lower interest rates

Many lenders offer slightly lower interest rates for properties with the highest EPC (Energy Performance Certificate) ratings, usually A or B. This could mean lower monthly repayments and a little extra breathing room in your budget, rewarding you for choosing a more energy-efficient home.

Improved property values

Thinking about the future? Energy efficiency could be a selling point if you decide to move.

Nationwide research found that homes with an A or B EPC rating sold for around 1.6% more than similar D-rated properties – roughly a £4,500 difference based on the average house price in England.

So, while a higher sale price isn’t guaranteed, an energy-efficient home could give you an extra selling point.

Cashback incentives

Who doesn’t want a bit of cashback? Some lenders offer a cash reward when you take out an eligible green mortgage. You could put it towards making your home more energy efficient – or just buy those trainers you’ve had your eyes on.

Lower energy bills

A home that keeps the heat and uses less energy can be cheaper to run. If your property has a high EPC rating, you might already be benefiting from lower energy bills. Plus, if you’re planning improvements, you could see even more savings once the work is done.

The drawbacks of a green mortgage

Green mortgages can offer useful perks, but they’re not always right for every buyer. Here are a few things to consider before choosing one.

Rates aren’t always lower

While some green mortgage deals offer lower interest rates, others might have rates similar to, or even high than, standard mortgages. It’s a good idea to compare each deal before making a decision, so you have a better understanding of the costs and potential fees involved. Don’t always assume you’re getting the best deal.

Limited choice

There are fewer options for green mortgages compared to standard deals, as not all lenders offer green mortgages. This could limit your options when it comes to finding a rate and terms that suit your circumstances.

Stricter eligibility criteria

Green mortgages often come with specific requirements and criteria can vary between lenders. It’s a good idea to do your homework and check what’s needed before you apply.

Potentially expensive upgrades

There are cheaper retrofitting options out there, but the majority of upgrades that can raise a property’s EPC rating to A or B tend to be expensive.

Who can get a green mortgage?

Now you know more about what green mortgages are, you might be wondering if you can get one.

It often comes down to the property you’re buying or the improvements you’re planning to make.

You might be eligible for a green mortgage if:

• You’re buying a home with an A or B EPC rating

• You’re buying a new-build home

• You own an older property and want to make some energy-saving upgrades

• You’re improving your home’s energy efficiency

Green mortgages for remortgaging and home improvements

Already own your own home? You might still be able to benefit from a green mortgage, whether you’re looking to remortgage or make your property more energy efficient.

If your current mortgage deal is coming to an end, it’s a good time to review your options. Plus, if you want to make your home more energy efficient, a green further advance could help you borrow the extra money you need.

You might also be able to get help with the cost through government grants or schemes, depending on where you live and your circumstances.

For example, the Warm Homes: Local Grant can help eligible households pay for energy-saving improvements like loft and underfloor insulation or solar panels.

Is a green mortgage right for you?

Ultimately, whether a green mortgage is right for you depends on your individual circumstances and priorities.

For eco-conscious buyers of top-rated homes, the incentives can often outweigh any minor drawbacks. You might also find that the annual energy saving costs outweigh higher interest rates, but it’s a decision that only you can make.

If you’re still not sure whether a green mortgage is right for you, speak to one of our advisers. They can guide you through the process and give you more information.

Remember, energy efficiency brings long-term savings on bills and contributes to a more sustainable future. So, whether you choose a green mortgage or not, making conscious choices about your home's carbon footprint is always a winning move.