Eco Mortgages

An EPC scores a property on its energy efficiency, between A (the best) and G (the worst). The EPC estimates the property's energy consumption and is valid for 10 years. It also shows how to improve a property's rating. You can find EPC ratings for properties in England, Wales and Northern Ireland on the Government's website. Scotland has a separate register.

In certain cases, the terms eco and green mortgage refer to the same products and are used interchangeably. But it's worth noting that an eco mortgage can also mean a property built using environmentally friendly construction methods and only using sustainable materials. These properties can prove a little more challenging to get a mortgage for than standard-built homes. In this case, you may be offered a specialist mortgage product that the lender refers to as an eco mortgage.

While there are numerous benefits to an eco mortgage, there are a few drawbacks to these homeowner loans that you should keep in mind. For instance, the number of eco mortgages available on the market is relatively limited, giving you fewer options. Green home mortgages can also come at higher rates than non-green mortgages. Meanwhile, eco-friendly renovations and home improvements may mean your property is eligible for an eco mortgage, but the work can be very expensive and time-consuming.

How much deposit you need for an eco mortgage depends largely on the lender and their specific criteria. Most lenders will also look at whether you’re self-employed, a first-time buyer or an older buyer.

In most cases, there isn't anything green about the mortgage itself. What makes it a green mortgage are the eco-friendly credentials of the property you live in or are planning to purchase. Eco mortgages work in much the same way as any standard mortgage. You'll borrow a large amount of money from the lender to purchase a property and pay it back in monthly instalments, with interest going to your lender.

Whether a green mortgage is cheaper will depend on several variables. For example, if you’re looking to buy a house with a high EPC rating, you may find that a green mortgage is the most cost-effective option.

Alternatively, you may find that you can get a more competitive rate with a standard mortgage through a different lender. If you’re looking to borrow to make improvements to your home to make it even more energy-efficient, you may find a green mortgage is the best option. However, depending on what other lenders are offering at the time, it might not be the cheapest option for you. That's why it's always good to shop around when looking for a mortgage. You should also speak to an independent mortgage broker who can look through all the options to help you find the best mortgage for your needs.

How much you can borrow on an eco mortgage will depend on several factors, including:

While eco-friendly improvements to your home can be a great investment, they’ll come at a cost. The average cost of improving a home to achieve an EPC C band rating is £8,100. Installing a range of recommended energy improvement measures to enhance the rating of homes currently rated F or G could cost in the region of £25,800. It's important to keep in mind that while you’ll see savings on your energy costs, the true financial payback of making these green improvements could take several years.

If you want to build your own environmentally friendly property from scratch rather than purchasing an existing one, you may require an eco self-build mortgage rather than a standard mortgage. You'll also need to use a builder with experience building eco-friendly properties and using green materials. The builder will be able to give you an outline of how much it will cost to build your green home, breaking down each cost into separate sections based on each stage of the build. Most eco homes are built using non-standard building materials, so these properties are categorised as "non-standard construction".

After each stage of the eco build is finished, an independent surveyor will visit the property to check that the work is completed so the lender can release the funds to the builder. With some construction loans, you only have to pay interest on the money drawn out each month and only start to repay the loan once the build is complete. If you are looking to build your eco-friendly home on a brownfield site, you may find it harder to get a mortgage, but certainly not impossible. Lenders are generally more hesitant to lend for this type of development as the land is often derelict or contaminated, and it is viewed as more of a lending risk.

Once you have found a suitable eco mortgage and checked that you’re eligible, you can apply for a mortgage in principle with the lender in much the same way as applying for a standard mortgage. The documents you’ll need for your green mortgage application will vary depending on the lender. In most cases, you typically need proof of ID, such as a full UK photocard driving licence or current passport and proof of address in the form of council tax or utility bills. You'll also need proof of earnings, such as payslips, bank statements, and evidence of your mortgage deposit. You'll probably have to provide evidence of your home's energy efficiency by supplying the lender with a valid EPC. If it's not built yet, you'll need to provide a projected energy assessment.

If you are looking for an eco mortgage, speak to our team of independent advisers at John Charcol. At John Charcol, we have access to an extensive range of specialist mortgage products, including eco self-build mortgages. Our expert advisers can help you find the right financing option. Contact us on 0330 433 2927 or submit an online enquiry to learn more.