WE have been asked on many an occasion what our views are on green mortgages, so herewith. There is indeed a move to push toward net zero and energy efficient homes will gather pace in that regard.
Many homes are far from efficient and will eventually lose value especially if energy costs remain high. A friend of mine had all his work done to his property and his entire energy bill last February was 28p. It’s not hard to see how that home will keep its value. If the average energy bill with gas and electricity is £2,400, that is the equivalent of £48,000 of borrowing at a five per cent two-year fixed rate. It’s a clear value gap.
There are many, many homes that are very energy inefficient and also use fuels that are dependent on what I call the bad folk - the dirty fuels and the fuels that can have their hand in your pocket in many ways. They are also the fuels whose price can be manipulated, some of which are in the hands of others such as the cartel Opec.
This was my core reason for my full energy refit – so the bad guys couldn’t get their hands in my pocket.
Governments will alter policy, create a bit of fear (stick) and give an incentive (carrot). The stick might look like an increase in council taxes or equivalent based on your energy ratings, with improved grants and better borrowing rates if you improve the ratings as a carrot.
It will be sooner rather than later.
Our homes use 35 per cent of all the energy in the UK. They also emit 20 per cent of carbon dioxide emissions. Tell me that’s not a clear target.
Green mortgages are supposed to make you feel special and increase the appeal to either have or create an energy efficient home. Lenders are supposed to be offering these better terms because these homes will be holding their value better ie they are a safer collateral for them. Moreover, if your energy bills are much less, your monthly costs are less too.
The reality…well. I asked my mortgage director Pat Greene to spell out the bad news.
Right now, it’s just a nice story with the best green mortgages being beaten by the normal deals an independent mortgage broker can achieve elsewhere, often very comfortably. A £300,000 mortgage with Barclays green was £6,000 more than the best non-green mortgage on the market.
It’s like getting a VIP early entry ticket for a dance when no-one else is there, the drinks are at the most expensive, and the lights are all on just to be sure your bad decision is noted. But at least you are a VIP, eh?
Barclays do, however, offer a greener home reward for existing customers of £2,000 for those who carry out green improvements to the property.
Of course you can simply apply for any non-green version and pay the cheaper option if there is one.
As another simple example, on a five-year fixed rate with AIB, the improved difference is 0.1 per cent per year - £300 per year on a £300,000 mortgage!
If you have a true green mortgage on a property that is A rated for energy (see my next point) the Monmouthshire Building society offers a discount of 0.7 per cent off their rates to first time buyers and home movers.
This will undoubtedly change and become more palatable and competitive, especially as purchasers shun energy consuming homes in favour of energy efficient homes, thereby driving the former’s prices down through simple supply and demand.
If you are thinking of upgrading, remember that the rush to upgrade will nudge up the prices of the energy refit, so sooner is better than later perhaps.
If a green lender is important to you, there is an excellent search tool to show how nice your lender is to the environment. Type your lender’s name into Bank.green and get out the popcorn. It’s not nice reading.
I’m not picking on Barclays, but Bank.green’s report says Barclays is “#1 in Europe for fossil fuel financing. Your money is being used to fund climate change at an alarming rate". You can read the rest. It’s the opposite of marketing.
:Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. For advice on fossil free banks, green mortgages or borrowing, get in touch with mortgage director Pat Greene on pgreene@wwfp.net or call 028 6863 2692.
