What are ‘Green Mortgages’?

What Are Green Mortgages

In an age where everything is slowly but surely going green, the existence of the ‘green’ mortgage comes as no real surprise. However, comparatively few current and prospective homeowners are familiar with what the term refers to.

Below, you’ll find five helpful answers to some of the most important questions on the subject of green mortgages:

What is a green mortgage?

In the simplest terms, green mortgages are financial products from banks and lenders that enable buyers and lenders to access preferential rates by demonstrating that the property they intend to purchase is environmentally friendly. or, at least, complies with certain specified environmental standards. It could be that the home already has an outstanding sustainability rating or that the borrower intends to invest heavily in the property’s environmental performance. In both instances, the borrower may be considered eligible for a green mortgage.

Essentially, green mortgages target environmentally friendly buildings and encourage buyers to invest in green properties. If the property is deemed suitable, the lender may choose to provide a mortgage with a lower rate of interest or with some kind of discount on the usual overall cost of the loan. The concept of the green mortgage was only introduced relatively recently, though it has already attracted the attention of some of the biggest banks and lenders in the United Kingdom.

Who defines ‘green’ and why are the banks interested?

It’s technically up to each individual lender to determine the extent to which they consider any property ‘green’ or otherwise. Lenders outline their own criteria and environmental standards the property must comply with in order for the borrower to access any subsequent incentives accordingly.

For the borrower, it all adds up to potentially significant savings on their long-term mortgage obligations. As for what’s in it for the lender, it all comes down to reducing risk. Lower-risk loans almost always have lower interest rates and borrowing costs, with green mortgages being considered safer than conventional mortgages. Work out the costs of a mortgage using our mortgage calculator in the UK.

This is partly due to the fact that environmentally friendly buildings usually cost less to run and maintain. In turn, the mortgage buyer has reduced outgoings and more money available to keep on top of their mortgage payments. In addition, the market value of any environmentally friendly property is typically significantly higher than that of a comparable property with a lower eco-rating. Statistically, it is likely that those who invest in green properties will own homes of higher value at the end of the loan term.

Many lenders see both of the above as added insurance policies for the green loans they provide, which is why they are willing to offer them at a lower overall cost.

Will green mortgages really make a difference?

For the time being, the whole green mortgage is still in its infancy. Nevertheless, it is expected that the new approach and policy conducted by banks across Europe will indeed make a difference. It’s estimated that the overwhelming majority of buildings we will be using in the year 2050 are already built. A figure that underpins the importance of both constructing new energy-efficient buildings and improving the eco-friendliness of existing buildings To date, around 20 of the biggest banks in the European Union have demonstrated an active interest in the new green mortgage initiative. The idea is that the scheme encourages parties on both sides of the deal to favour eco-friendly homes. The potential for the project is huge, though it is not expected to hit its stride for another couple of years at least.