Green mortgages explained

Are green mortgages worth it and how can you get one? And will you need to improve your home’s EPC rating to get a mortgage? We take a look.

Angela Kerr Director, Editor

What are green mortgages?

Green mortgages reward you for saving energy in your property. Lenders that offer green mortgages include Barclays, NatWest, Virgin Money and Nationwide.

Some lenders will give you lower interest rates or cashback and larger loans if your home meets a minimum energy-efficiency level. Other lenders will offer lower rates or cashback if you make energy-efficiency improvements. Or if you take out additional borrowing to pay for measures to improve your home’s energy efficiency.

Each lender will have its own terms and conditions for its green mortgages, but lenders generally offer green mortgages on homes with an EPC rating of A or B. Read more in our guide What is an EPC?

Why were green mortgages introduced?

As part of the government’s strategy to reach net zero carbon emissions by 2050, the government has proposed that it wants all homes to achieve at least an EPC band C by 2033 ‘where practical, cost-effective and affordable’.

An energy performance certificate is required when a home is built, rented or sold. The most energy-efficient homes are rated A and the least efficient rated G. Currently, only 40% of houses have a C rating or higher.

The government had proposed setting ‘voluntary improvement targets’ for lenders to reach an average of Energy Performance Certificate band C across their mortgage portfolios by 2030 – and warned this target may be made mandatory if ‘insufficient progress’ is made.

But in autumn 2023 the Prime Minister appeared to remove this proposed target because the cost to the public was too burdensome. Nevertheless, some lenders are sticking with their green pledges. For example, Nationwide Building Society and NatWest are still sticking to pledges to make 50% of their mortgage customers’ homes EPC rating C or more by 2030.

Find out whether a green mortgage is right for you. Get expert advice from our partners at L&C. There’s no fee – just great service

What could this mean for homeowners?

While there’s nothing to suggest that lenders will stop lending on properties with a low EPC rating altogether, concerns have been raised that it could become harder to get a mortgage on properties with a low EPC rating. If this happens it may lead to:

• Homes may become harder to sell and lose value: People living in properties with low energy-efficiency may find it harder to sell if buyers find it harder to get a mortgage.
• It could create mortgage prisoners: Homeowners may find they’re forced to stay with their lender and unable to shop around for cheaper mortgage deals if lenders won’t offer mortgages on homes that are less energy efficient.
• It could hit the worst off hardest: If it’s harder to get a mortgage on a property with a low EPC rating, this could disadvantage poorer customers the most, who are less financially able to improve their property’s rating.

For expert advice on all your mortgage options, get in touch with our fee free mortgage partners:

How much does it cost to make an old home more energy efficient? 

The cost of upgrading a property’s EPC rating from a D to a C is likely to be thousands, according to analysis by Habito. It calculated the cost of improving the rating of a one bed flat or properties measuring under 55m2 is up to £3,653. This increases to up to £6,400 for small mid-terrace houses (under 100m2). While for a large, detached family home of 100-200m2, the potential cost rises to up to £12,540.

And that’s assuming it’s possible to make improvements. Analysis from Rightmove earlier this year found 1.7million homes would be unable to ever reach a C rating.

However, for those who can improve their home’s EPC rating they may see their property value rise. A Rightmove study of 200,000 homes found that owners who upgraded their home from an F to C saw the value rise by an average of 16%. While moving from an E to C added an average of 8%. And moving from a D to C added an additional 4% on average.

One of the most cost effective energy efficiency improvements you can make is to insulate your loft. Research by the Energy Saving Trust found that a quarter of your home’s heat is lost through the roof in an uninsulated home. Fixing that can cost under £1,000 and save you almost £300 a year. See our guide to loft insulation costs for more advice.

It’s worth checking the energy deal you are on. Use our free tool to compare energy deals — see if it is worth switching and saving.

Green mortgage lenders

There are a number of green mortgages already available from different lenders. These include:

• NatWest

If you buy a home with a valid EPC rating of A or B you may be eligible for a Green Mortgage product. These offer a reduced rate on a 2 year or 5 year fixed rate mortgage. And you could also get cashback too.

• Nationwide

If you buy a home with a Nationwide mortgage, the lender will reward you with £500 cashback if the property has a score of 92 or above on its EPC. Or £250 cashback if the property has a score of 86-91. This is in addition to any other cashback offers.

Get expert advice on green mortgages from our partners at L&C. There’s no fee – just great service

Barclays Green Mortgage

Barclays also offers green mortgages. You can apply for a Barclays Green Home Mortgage if you’re buying a new-build property directly from the builder or developer and it has an energy efficiency rating of 81 or above, or is in energy efficiency bands A or B. And you could get lower rates on some fixed-term mortgages.

Which other lenders offer green mortgages?

Some of the other lenders that offer green mortgages are:

• Kensington offers the eKo mortgage which offers £1,000 cashback for improving your home’s energy efficiency, however you’ll need to raise your home’s EPC rating one band or by at least 10 SAP points within 12 months of your mortgage completion date.
• Saffron Building Society offers the 2 year Retro Fit Fixed Rate mortgage aimed at people who want to improve their home’s energy efficiency. If you show evidence of an improvement in EPC rating the rate will be reduced by 0.10%. The improvement should come within 6 months.

Are green mortgages cheaper?

Green mortgages aren’t necessarily cheaper. In some cases, if you already own a house with a high EPC rating you may find a green mortgage is the cheapest option for you. But you might be able to get a better rate with a traditional mortgage with a different lender.

While if you want to borrow more to undertake improvements to make your home more energy efficient, your best bet may be a green mortgage. But depending on what else is available, it might not be the cheapest option for you.

So you’ll need to shop around. It’s a good idea to speak to a broker. They’ll be able to search through all the options for you and find the best mortgage for your needs, whether it’s a green mortgage or not.

What are the advantages to green mortgages?

Here are some advantages to consider:

• You may get a cheaper rate.
• If you take out a regular mortgage you may still be eligible for cashback if your home meets certain energy efficiency conditions set by a lender.
• By either buying an energy-efficient home to qualify for a green mortgage or by making improvements now, whether you do this by using a green mortgage or not, you may be future-proofing your property in case it’s harder to get a mortgage in the future for homes with low EPC ratings.
• If you have a house with a high EPC rating, lenders may offer more flexibility when it comes to affordability because they will know your energy bills are likely to be lower. And having lower energy bills also has a financial benefit too.

For more advice on making improvements, see how to make your home more energy efficient.

Are green mortgages actually green?

Green mortgages reward you for saving energy in your property, whether by buying a home with a good EPC rating or by making energy-efficiency improvements. There are benefits to the environment if people do this.

How energy efficient is my home?

If you’re wondering how energy efficient your home is and your home has had an EPC in the last 10 years, you can check the EPC rating using this government site.

If you’re looking to sell your home or are interested in your home’s energy rating, then you can simply fill in a short form to get quotes from a local qualified energy assessors in a matter of minutes. You can then compare quotes and book your energy assessor for a home visit.

Are there any home energy efficiency grants?

Before paying to install any energy efficiency measures, see our guide on what energy grants are available to help pay for things like heat pumps and loft and cavity wall insulation.