How Green Mortgages Can Revolutionise Energy Efficiency in the UK

As the UK increasingly takes measures to achieve its ambitious climate goals of reaching net zero emissions by 2050, the government recently unveiled a Ten Point Plan for Green Industrial Revolution as a roadmap for meeting the country’s climate goals.

UK households account for 14 per cent of carbon emissions, thus showing that the housing and mortgage markets will play a significant role in the sector. The housing faces inefficient heating systems and improper insulation lead to higher energy costs to British households. The government identified two ways to address the sector’s emissions targets by aiding in the development of energy efficient building and offering green finance.

The government announced a £1 billion fund aimed at increasing the energy efficiency of new and existing homes and the extension of the Green Homes Grant Scheme. The voucher scheme helps in covering up to 67 per cent of home energy efficiency improvement costs.

The government also expects an addition of 250,000 new jobs under the Ten Point Plan for Green Industrial Revolution program.

What is a green mortgage?

A green mortgage is a mortgage offered by banks and financial services companies to homes which demonstrates that the property meets pre-set environmental standards. Banks offer lowered interest rate or a higher borrowing amount to such applicants in order to incentivise uptake of green mortgages.

Also Read: How Can UK’s New £10-Mn Green Finance Push Impact Climate Talks

Changing landscape

Recently several green mortgage schemes have been introduced in the market. Paragon Bank announced new green mortgage offerings for buy-to-let property owners. This rise in new green financing options could prompt landlords to make their rented properties more energy efficient.

Natwest, a banking major in the UK, also announced the launch of a green mortgage product last year. It aims to have 50 per cent of its mortgage book to have an EPC rating of C or above by 2030. The bank currently offers up to 85 per cent of a loan-to-value for customers, with a £250 cashback.  

While another UK based financial services giant, Nationwide Building Society (LON: NBS) has offered an additional £5,000 to £25,000 loan for home improvements related to energy efficiency. Nationwide’s shares were trading flat at GBX 164.00 as of 21 May at 14:46 PM GMT+1. 

Also Read: Nationwide To Allow Flexible Work to Staff Post Lockdown 

At present, all private rented residential homes are required to have a rating of E or higher under the Energy Performance Certificate (EPC). Uptake in higher rented properties having higher EPC ratings has increased recently as landlords are investing more and more in making buildings energy efficient.

Moreover, all rented properties will need to have an EPC rating of C or higher by 2025, further improving energy efficiency in the private sector. Currently there are 27 green mortgage deals in the market, with the number rising as more players enter the market. The green mortgage sector is expected to account for a larger portion of the financial sector in the coming years.