Can Green Mortgages Revolutionise Energy Efficency In The UK?

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The UK is consistently taking measures to achieve its ambitious climate goal of reaching net zero emissions by 2050. As part of that, the government recently unveiled a Ten Point Plan for a Green Industrial Revolution, which is like a roadmap to meet the country’s climate goals. It’s estimated UK households account for 14% of carbon emissions, so therefore can play a significant role in reducing it.

• Inefficient heating systems and improper insulation in houses lead to higher energy costs for British households. The British government has identified two ways of addressing the sector’s emissions targets--by aiding in the development of energy efficient buildings 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 this plan.

• A green mortgage is offered by banks and financial services companies to homes which meet pre-set environmental standards. Banks offer lower interest rate or a higher borrowing capacity to such applicants in order to incentivise the uptake of green mortgages.

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

• Major British bank Natwest, also announced the launch of a green mortgage product last year. It aims to have 50% of its mortgage book to have an Energy Performance Certificate or EPC rating of C or above by 2030. In the UK, the EPC rating is used to review the energy efficiency of properties.

• Natwest offers up to 85 per cent of a loan-to-value for customers, with a £250 cashback. Another financial services company Nationwide offers an additional £5,000 to £25,000 loan for green home improvements.

• At present, all private rented residential homes are required to have a rating of E or higher under the 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.

• And 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 dozens of green mortgage deals available, 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.