A brief look at green mortgages

The term 'green mortgage' has shifted from the specialist pages into the mainstream press. What are they and what benefits they may offer to new and prospective landlords.

​With a greater awareness of environmental issues and suffering under rapidly rising heating costs, more Brits are looking towards energy efficient homes and taking advantage of green mortgages - but what are they?

What is a green mortgage?

A green mortgage is a type of mortgage a borrower can use when buying a home that meets certain energy efficiency standards. These environmentally friendly properties may be eligible for mortgages on better terms than other mortgages from the same lender.

They may be offered to buyers of most newly built properties or to those who are remortgaging to meet the costs of upgrading a property to meet the required standards.

How do they work?

A lender takes household expenditure, including energy costs, into account when underwriting a mortgage. When looking at the energy costs, the lender will refer to the property's EPC rating. Those with a rating of A or B will likely qualify for a green mortgage.

Once the lender deems the property to qualify, they may offer a lower interest rate or in some cases, a cashback.

A green mortgage might be to purchase an existing property with an EPC A or B rating or to refinance to meet the costs of the energy upgrades.

What's in it for property investors?

84% of new build properties achieve an EPC A or B rating. Investors buying these should certainly press their lender or broker for a green mortgage.

For existing landlords, the picture is more muddied.

Landlords whose properties have an EPC D or below should be aware that they will almost certainly be unable to let their properties from 2026 in the case of new tenancies or 2028 for existing tenancies. This obliges them to upgrade to at least a C rating. It may be that a green mortgage could tempt them to go the extra mile and upgrade to EPC B where possible.

Landlords whose properties have a C rating could consider a green mortgage to future proof their investment.

The long term benefits to landlords are clear. Whether it is a new build or upgraded property, tenants will be attracted to homes that cost less to heat. When the time comes to sell, a prospective buyer will see the extra value that an energy efficient home brings - and the green mortgage that goes with it!