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Are green mortgages really a good idea?
There is considerable public interest in anything that claims to be eco-friendly and green mortgages are no exception to this growing trend. However, before jumping into a new mortgage product that promotes its eco-friendly benefits make sure that you have looked at the credentials of the lender and that you agree with the policies and products available from your provider.
What is a green mortgage?
At the most basic level lenders who offer green mortgages will make a donation to an environmental charity for each mortgage that they arrange. Some lenders have schemes in place to plant trees in both the UK and abroad thereby helping to neutralise or reduce the carbon footprint that is created by each new mortgage approval.
Other lenders are willing to offer a cashback package to mortgage customers who agree to install energy saving devices or insulation materials in their new home. Customers who are planning a self build property may qualify for a reduction in their mortgage interest rate if they use sustainable building methods and /or incorporate energy saving designs and materials in their plans.
It is also possible to apply for a mortgage for old and abandoned properties that can then be renovated to a high standard using the most modern building techniques to make them efficient and help preserve some heritage buildings whilst contributing to the local community.
All of the above criteria can sometimes apply to business and commercial mortgage loans.
There is no absolute definition of a green mortgage - lenders are free too market their products in any way that they choose - home buyers should do their own research.
The Co-operative Bank, amongst others, has called for a clear definition of a green mortgage – probably because they suspect that other lenders will jump on the eco-bandwagon to attract new customers rather than because they have seriously considered the green credentials and environmental benefits of the products they are providing.
Are green mortgages affordable?
These mortgages are usually offered at competitive rates but if you really want to shop around for the cheapest fixed or discounted rates when buying your property then consider the most basic green options. If your mortgage lender has a commitment to plant trees for every product they sell then at least there has been some attention to environmental issues, alternatively borrowers may choose to avoid the hype, choose a traditional mortgage product and make a personal decision to arrange a donation to an environmental charity of their choice.
If you are looking to remortgage in order to undertake refurbishment of your current home then you may be able to secure a special rate by agreeing to use eco friendly materials, install good insulation, double or triple glazing and efficient heating systems. By planning to incorporate these features into your building plans you will also save money on your energy bills and this kind of investment now reaps rewards over a much shorter timescale than was the case in the past.
Buyers who are contemplating buying a new build property should check whether the development has been assessed for energy efficiency and sustainability by the planning department. If the developer has used greener materials and invested in good energy saving materials then the mortgage loan on the property may qualify for a lower rate of interest.
If you are looking to save money on your energy bills and make sure that your home is as efficient as possible then a mortgage that rewards you for this commitment via lower interest rates or special offers may be a sensible choice.
Are these products really ethical?
Mortgage lenders are usually profit led but the range of green mortgages appearing on the market has grown over the last few years. Some banks and building societies are leading the way in providing home loans that encourage environmental sustainability and without doubt other lenders will follow suit if the demand from customers continues to grow.
The Co-operative Bank has had a long history of ethical investment and the Ecology Building Society whilst being small has become an established and respected lender for building projects, housing developments and renovations that may be viewed as risky or unattractive by traditional high street banks. Established for just over 20 years the society has grown considerably and as a specialist lender assesses each loan individually, striving to make a real difference to the use of old buildings and conservation of green spaces.
The Hanley Economic Building Society, Norwich and Peterborough Building Society and Teachers Building Society all offer green mortgages but check with your advisor about availability.
Some commentators are sceptical about the motives behind any big banks beginning to provide green mortgages but these institutions have often been very active in implementing initiatives that may be termed eco-friendly. Along with most large businesses they will usually have an environmental impact policy to address the use of energy and encourage re-cycling amongst staff in the workplace, these policies are now beginning to be developed and transferred over to consumer products.
Does the Government support green mortgages?
The short answer to this question is yes, the recent Labour Government introduced some support for home owners who were looking to reduce the environmental impact of home energy use and subsidised schemes that addressed this issue. The new Conservative and Liberal Democrat coalition Government will undoubtedly continue with some of these policies but in the current economic situation it is unlikely that any new subsidies will be introduced.
There is however every chance that in the near future government legislation will insist upon sustainable materials and energy saving measures for every new home, renovation or other building project in the UK. But for the moment it is down to some innovative banks and building societies to provide green mortgages that are affordable and regarded as being worthwhile by their customers.
Who is applying for a green mortgage?
Home buyers who have a firm commitment towards environmental issues and have already been taking steps to reduce their carbon footprint will want to shop around for consumer products that best match their personal beliefs and values. This may mean that some customers are willing to pay a little bit extra for various items, including their mortgage, knowing that they are helping to ensure a healthier planet and making a commitment to future generations.
Speak to a professional about a Green Mortgage