Mortgages For Eco Homes
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If you’re one of the growing number of environmentally aware home buyers in the UK, you’re probably wondering if there are any benefits to eco home mortgages.
In this article, we’ll look at what qualifies as an eco home, which mortgages can be used to buy them, and how to ensure you get the maximum rewards for choosing a more environmentally-friendly dwelling.
Can you get a mortgage for an eco home?
Yes, it’s absolutely possible to get a mortgage to either purchase or build an eco-friendly home. In fact, with a noticeable growth in public environmental concern in recent years, and the government’s commitment to achieving an EPC rating of C or above on all domestic properties by 2035, the demand for this type of mortgage product is increasing quickly.
In response, lenders are beginning to reward homebuyers’ environmental efforts by offering ‘green mortgages’ with various incentives and benefits. In a relatively short space of time, the number of specialist green mortgage products on the market has increased from 78 to upwards of 400, so there is plenty of opportunity, providing you’re able to meet lender criteria.
What is an eco home?
Eco homes are often purpose-built to have a lower environmental impact than the standard residential property. Sustainable and/or recycled materials are typically used, as well as building methods that produce a smaller carbon footprint than traditional techniques.
Although many of the larger property developers are focussing on improving the EPC rating of their new properties, those homes designed specifically to minimise their environmental impact tend to be built by individuals creating their dream homes.
An older home that’s been renovated to improve energy efficiency and/or reduce its environmental impact may also be considered an eco home by certain lenders. This could include where solar panels, double glazing or insulation has been installed to improve the energy efficiency of the property.
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How does an eco home mortgage work?
There are a wide range of eco home or ‘green mortgages’ available, and they work in exactly the same way as any other mortgage, but lenders offer benefits to reward your environmentally conscious purchase.
Benefits may include any of the following:
Lower interest rates
Each lender uses its own measures to determine whether your chosen property qualifies as an eco home for the purposes of their specific green mortgage products, however, they are typically looking for
- Homes with an energy efficiency rating of A or B
- Homes with an EPC rating above a certain level (usually upwards of 80)
- A certain level of carbon neutrality
The criteria are often easier to meet if you’re purchasing a new build home, and some lenders restrict their green products to new builds only, however, there are options available for older properties that have been upgraded to meet the above criteria.
What types of mortgages can be used?
The type of mortgage you need will really depend on whether you intend to purchase a ready-made eco home, renovate an older property that you already own, or plan to buy, or build your own.
As there are not yet a considerable number of eco homes available for purchase in the UK, perhaps the most common type of mortgage currently used for an eco home is a self-build. As funds are released in stages with self-build mortgages, this can be an efficient way to borrow the necessary amount to build a purpose-built eco home. It provides money as and when it’s needed, and, as you only pay interest on the sum already released, the amount payable overall is lower, when compared to taking the entire loan in one lump sum.
As building materials and processes used in this type of project are often classed as non-standard construction, not all self-build mortgages will be suitable for an eco home, however, an increasing number of lenders are providing specific eco home self-build mortgages.
Green development finance
Whilst currently available to a lesser extent than green mortgages, ‘green bridging loans’ are beginning to pop up in the UK, with bridging lenders offering similar incentives to green mortgage lenders, such as more competitive rates and cashback.
Bridging loans can be particularly helpful if you’re buying an unmortgageable property, or simply one that does not yet qualify for a green mortgage, with the intention of improving its eco-credentials.
Buy to let
Given the impending regulatory changes for rental accommodation, the incentive for buy to let landlords to improve the green status of their portfolio is somewhat more urgent. From 2025, all rental properties will need to achieve an energy efficiency rating of C, which means that the demand for eco home buy to let mortgages is fairly high.
Most high street lenders restrict their eco mortgage deals to residential properties, however, there are specialist lenders offering both buy to let mortgages and bridging loans for eco home purchases.
Standard residential mortgage
Unless you’re buying a newly built home from an energy-efficient developer, the chances are that existing eco-friendly properties will be classed as non-standard construction. This is because the materials used vary from the standard brick and tile house, and instead focus on more organic or recycled materials.
It’s possible that you would get a standard residential mortgage for this type of property, however, due to the non-standard construction, the pool of lenders available to you will be reduced.
Some lenders provide remortgage options to those looking to borrow additional funds to renovate their property into an eco home, at a discounted rate. You could use this type of green remortgage to make the necessary changes needed to benefit from a green product, such as replacing windows or installing smart heating.
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How a broker can help secure a mortgage for an eco property
We’ve discussed the range of green products available, however, in order to find the one most suited to your needs, it’s highly recommended that you speak with a broker who has experience in this area. As a relatively new lending niche, it certainly won’t be something that every broker will be able to help you with, so speaking to someone who understands and can fully explain the various options available to you is essential.
It may be that your property’s EPC rating is too low for one lender, but another lender would approve it. You may have designed the most eco-friendly and carbon-neutral property possible, but are unable to find a lender that will consider the materials used. You might even be struggling to determine which lender’s incentives offer you the best long-term benefits.
Whatever your circumstances and needs, the brokers we work with will be able to tailor their advice to help you achieve your goals. Contact us today to be introduced to a broker with the expertise you need.
How much can you borrow?
As with most mortgages, how much you can borrow is largely based on affordability. Affordability is typically calculated based on a multiple of your income, except in the case of a buy to let property, whereby it’s based on the potential rental income.
Most people can expect to borrow around 4.5 times their household income for residential purchases, however, certain professionals and high net worth individuals can sometimes borrow up to 6 times their income.
When it comes to eco homes, there are also some lenders willing to lend a higher income multiple if your home qualifies for what they consider to be top-tier eco-friendliness. This is based on the premise that paying less on your energy bills will leave more expendable income for mortgage repayments.
You can see how this may work out for you, based on your own annual salary, by using our mortgage affordability calculator:
Mortgage Affordability Calculator
Our affordability calculator can tell you how much you can potentially borrow from a mortgage lender. Simply enter your total household income below and our calculator will do the rest.
You could borrow up to
Most lenders would consider letting you borrow
This is based on 4.5 times your household income, the standard calculation used by the majority of mortgage providers. To borrow more than this, you will need to use a mortgage broker to access specialist lenders.
Some lenders would consider letting you borrow
This is based on 5 times your household income, a salary multiple you might struggle to qualify for without the help of a broker. This income multiple is not widely available to customers who are applying directly with a lender.
A minority of lenders would consider letting you borrow
This is based on 6 times your household income, a salary multiple you will struggle to get without a broker. Six-times salary mortgages are usually only available under very specific circumstances.
Get Started with an expert broker to find out exactly how much you could borrow.
Which lenders offer mortgages for eco homes?
There are now a number of high street and specialist lenders in the eco home niche, and green mortgages are expected to become increasingly available in the coming years.
Both the incentives and criteria vary from lender to lender, but some examples are:
- NatWest – Reduced rates are available on 2 or 5 year fixed green mortgage products for residential borrowers with LTV (loan to value) of 85%, as well as cashback, with a valid Energy Performance Certificate (EPC) rating of A or B
- Barclays – On homes with an EPC rating of 81 or above, or in energy efficiency bands A or B, lower rates are available on some of their fixed-term mortgages.
- Lloyds – don’t have a specific green mortgage, but are offering to lend either additional funds on your current mortgage, or when you remortgage to fund eco-friendly home improvements.
- Virgin – Offer a lower rate and flexible repayment options (overpayment and payment holidays) to those buyers purchasing a new build home with an energy efficiency rating of A or B
High street lenders can be more restrictive with their criteria and are typically less likely to provide mortgages for more unusually constructed eco properties. Some of the more specialist lenders will be more accepting of non traditional materials, such as insulated concrete, rammed earth and solar thermal heat pumps, but the rates are likely to be higher than they are with other green mortgage providers.
If you’re concerned about the green credentials of the lender themselves, then not many currently practice what they preach in terms of sustainability, however, Danske Bank recently launched an entirely carbon-neutral mortgage, and other lenders are expected to follow their example.
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Depending on the type of finance option you need, the eligibility factors will be largely the same as they are when purchasing other properties, such as affordability and creditworthiness, however, some important criteria differences to be aware of are:
- Deposit requirement – The majority of eco home mortgages require a larger deposit than other products. This may be as high as 20-30%, due to them being either non-standard construction and/or self-build properties, as both are considered higher-risk purchases from a lender’s perspective.
There are lenders in the niche with lower requirements, however, their other criteria may be stricter. It’s unlikely that you will qualify with the 5% minimum deposit that’s typically accepted for standard residential purchases.
- Property requirements – Each lender will specify their own criteria that a property will need to meet (or you’ll need to commit for it to meet when complete) and you’ll typically need, at least an EPC (Energy Performance Certificate) in order to confirm the level of energy performance achieved.
Some lenders will only accept newly built properties and may even require that you are purchasing a property from an approved list of partner developers.
Get matched with an eco home finance specialist
If you’re looking to purchase or build an eco home, you’re getting in at the ground level of what’s expected to be the future standard for UK properties, and there are a plethora of benefits to gain, not least future-proofing the value of your new home. That said, this is still a fairly new lending niche and certainly a complex one.
We work with brokers across the country who are experts in securing finance for those looking to build or buy an eco home. They can help you find those lenders offering the most competitive terms for the type of green mortgage or finance that you need.
Get in touch on 0808 189 2301 or make an enquiry today, and our free broker matching service will pair you with the most suitable broker for your needs. There’s absolutely no obligation, and your initial consultation will always be free.
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