Green and ‘eco friendly’ mortgages – what to look for

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Before the credit crunch the market in ‘green’ mortgages was growing steadily. But as the mainstream mortgage lenders clamped down a number of green/eco mortgages were withdrawn. There are green mortgages available, but it’s not a particularly large market and the bigger problem is that there’s little agreement on what a green mortgage actually means.

Providers of green mortgages

Some mortgage lenders market green mortgages that reward you with a lower mortgage rate if you buy or build a property that’s energy efficient. Others promise to plant trees or make donations to climate change charities when you sign up to one of their green mortgages.

Ecology building society, has a different approach to lending compared to many banks and building societies. It doesn’t offer special deals such as fixed rate or discount rate mortgages, but gives borrowers a discount off the standard rate of interest depending on how energy efficient the property is.

The Ecology building society is worth approaching if you’re looking to build your own energy-efficient home or if you want to renovate an existing property. That’s because it will lend on unusual projects that many other lenders turn down as long as they are being built or renovated in a sustainable way).

SAVVY TIP: All borrowers are entitled to a discount of 0.25% off the rate they are on after the first two years if they don’t qualify for a discount based on the energy efficiency of their home. The discounts for energy efficiency range from 0.5% to 1.25%.

The Co-operative bank has a range of tracker, discount and fixed-rate mortgages. As well as having a strong ethical policy the Co-operative bank donates to climate care projects around the world.

Smile is covered by the Co-operative bank’s ethical policy and it tends to have similar mortgage rates to the Co-operative bank.

Choosing your green mortgage

No matter how green you want to be, it’s important that you choose a mortgage that suits your financial circumstances. Before the credit crunch, we all got used to the idea of switching mortgages whenever we wanted to. But in the current environment it’s not so easy. Before you make your decision, find out:

– What the upfront costs and charges will be

– Whether there are any early repayment charges

– How the mortgage rate compares to non-green mortgages

– If you’re signing up for a preferential rate (such as a discount or fixed rate), the rate you would have to go on once the deal has run out and how it compares to the rest of the market.

Comparing green mortgages

If you want to compare green mortgages, you may have to do a bit of to-ing and fro-ing as most price comparison sites don’t list green mortgages separately.

SAVVY TIP: If you’re interested in ethical as well as green criteria, the specialist ethical independent financial advisers, Ethical Investors can search for a mortgage on the basis of a lender’s green and/or ethical criteria. If you’re after information rather than a recommendation, it’s worth looking at a website called Yourethicalmoney. It’s designed to be a one-stop-shop for information about green and ethical money and it has a section on mortgages where you can compare different lenders and find out how they score on across a range of criteria (from responsible lending to equal opportunities).

Related articles:

Saving energy and money around the home

Understanding the different types of mortgage

The ‘feed in tariff’ or clean energy cashback scheme could generate up to £1,000 a year

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