Green mortgages get the backing of many in the mortgage business but some commentators says general scepticism of the environmental agenda is holding these products back from mainstream lending.
The Energy Efficiency Partnership for Homes, a body set up to deliver the Government’s energy efficiency policies, defines a green mortgage as a homeloan which provides “a financial incentive which encourages the homeowner to buy or to work towards a high energy performing home”.
The Government is com-mitted to reducing its CO2 emissions by 34 per cent of 1990 levels by 2020 and with around 15 per cent of the annual emission cuts to come from making homes more energy-efficient, the issue is gaining urgency.
There are four lenders offering green mortgages of some description, Ecology Building Society, Hanley Economic Building Society, Co-operative Bank and Norwich & Peterborough Building Society. A spokeswoman for Teachers Building Society says it is looking to bring back a green mortgage product in the future.
Apart from the Ecology and the Co-operative Bank, lenders market green mortgages with the promise that the lender will don-ate a certain sum of money to an environmental charity or plant trees to offset carbon emissions.
The Co-operative offers a specific mortgage advance product for energy efficiency improvements to be made to a house.
The Ecology BS, on the other hand, offers borrowers who want to improve the energy efficiency rating of their home a range of discounts on its standard variable rate of up to 1.25 per cent. The lender has no fixed-rate products and borrowers go straight on to its SVR of 4.9 per cent. The size of the discounts depends on the energy performance rating the house achieves after the work is completed.
The Government runs a scheme, called the Green Deal, which allows people to install energy-efficient appliances, such as a new boiler or cavity wall insulation, which is then paid for by a charge on their energy bill.
But Emba group sales and marketing director Mike Fitzgerald says more lenders should provide green mortgages and believes the Government should be encouraging them.
He says: “I would like to see more lenders offering these types of financial incentives. I think the Government could sit down with lenders and say, look, we need to lower our CO2 emissions, what can we do?”
Ecology Building Society lending development officer Jon Lee believes lenders should not shy away from these types of mortgages because, ultimately, the fuel savings borrowers make will free more cash to ensure they can pay back their loan.
He says: “From a lender’s point of view, the risk factor of people being able to afford their repayments is less if they are in a property in which the energy bills are lower. That is the most persuasive argument of all. I think lenders are missing a trick.
“We think, over time, properties that are well designed, well built and monitored for energy efficiency will become more and more in demand, as the market matures.”
But the Council of Mortgage Lenders believes the easiest way to improve the energy rating of the housing stock is through further advances for home improvements.
It says: “The biggest impact lenders are likely to have on improving the environmental performance of housing is through the use of straightforward mortgage advances to fund home improvements.”
Lee does concede that the scepticism around the environmental agenda hampers the take up of green credit products.
He says: “At the moment, I am not sure we are quite there because there is still a bit of scepticism that eco has to mean it has a grass roof or it is only for people who have got a collection of sandals and beards.
“Whereas actually, the people who are looking to invest in these properties are mainstream, profess-ional people who have an appreciation that this kind of design is not only cheaper in the long run but is also actually a bit more comfortable and attractive to live in.”
First Action Finance head of communications Jonathan Cornell says the mortgage industry’s attitude towards energy efficiency has to change before these products can begin to break into the mainstream.
He says: “One of the problems is the industry does not necessarily recognise the value of energy efficiency. So if you have two outwardly identical properties, one is energy-efficient with phenomenal insulation and other things and the one next door without any of that, it is unlikely a surveyor would put a higher value on the property that is more energy-efficient.”
Moneyfacts.co.uk puts the average SVR at 4.8 per cent at present, while the Ecology’s SVR is 4.9 per cent, before discounts are taken into account.
Even though Ecology’s SVR is broadly in line with the market average, Cornell says until niche lenders come out with market-beating rates, the take-up of these types of mortgages will remain limited.
He says: “If one of these lenders started to offer a market-leading rate, it might allow bigger take-up of these mortgages. But I very much doubt the rates, even with the biggest discounts for the greenest house in the world, are going to be the cheapest on the market. Until that starts to happen, what is the point on spending the money on their home to get a cheaper mortgage rate?”
Your Mortgage Decisions director Dominik Lipnicki says: “You would have to save someone a lot of money for them to be driven to install solar panels when they would not otherwise.”