Back in 2017, the UK government published their Clean Growth Strategy, a report that included plans to work with lenders in order to create “green mortgage products,” that are able to “take account of the lower lending risk associated with more efficient properties and the reduced outgoings for customers living in more efficient homes.”
More recently in June 2019, The World Green Building Council Europe launched a new report: ‘Creating an energy-efficient Mortgage for Europe: the supporting role of the green building sector.’ So steps are certainly being made all over the world to introduce green mortgages into the market, but what exactly are they?
Green mortgages in the UK are mortgages that support energy-efficient homes. Barclays launched their first green mortgage back in April 2018, partnering with construction companies all over the UK in offering green mortgages on energy-efficient new builds. The home has to have an energy efficiency rating of 81 or above, or be in energy efficiency bands A or B, to be eligible.
Analysis by the Bank of England in October 2018 found that homeowners living in energy-efficient properties are less likely to be in payment arrears. The study of 1.8 million properties found that around 1.14% of energy-inefficient homes are in mortgage payment arrears, compared with 0.93% of energy-efficient properties, concluding that “energy efficiency of a property is a relevant predictor of mortgage risk.”
In support of these new energy efficient mortgages, providers are offering reduced rates for those looking to purchase property. The premise is simple: those owning energy-efficient homes are less likely to be in arrears, therefore carrying reduced risk to the lender.
These new mortgage options herald a more ethical, mutually beneficial approach to lending that fits within the new swathe of greener policies being enacted by governments around the world. Craig Calder, Director of Mortgages at Barclays, says that: “Green Mortgages need consistent support at the highest levels if they are to become the norm rather than a strand of alternative lending.”
With more and more companies seeking to improve their energy efficiency and their carbon footprint, financial opportunities such as green mortgages may become the norm. However, with such schemes still being relatively new, it seems that only time will tell.