Saffron Building Society is offering environmentally conscientious homeowners the chance to save money on their mortgage by making their homes greener.
The lender’s new retro-fit mortgage is a two-year fixed rate at 1.47 per cent with a £999 fee, available to homeowners and first-time buyers with 20 per cent or more equity to put in.
Borrowers who then make improvements to their home and can prove their energy efficiency rating has risen by one band – to a minimum of E – will be given a discount on their monthly mortgage payments for the remainder of the two-year deal.
Installing solar panels, grey water recycling or signing up for local energy generation projects also help to cut your home’s carbon footprint
‘The purpose of this mortgage is to encourage borrowers to upgrade current housing stock to a better energy efficiency rating,’ said Laura Bright, who developed the mortgage deal for Saffron following a report published last month.
In it, the Coalition for the Energy Efficiency of Buildings, set up by the government in December 2019, outlined ‘the urgent need to increase the pace and scale of investment into the energy efficiency and resilience of UK residential buildings’ if the UK is to meet its carbon reduction targets on time.
Last year Britain became the only major economy in the world to legally commit itself to going green by cutting its carbon emissions to ‘net zero’ by 2050.
Today, commercial and residential buildings in the UK are responsible for approximately 30 per cent of the country’s total greenhouse gas emissions.
The CEEB report warned that failure to decarbonise the built environment could result in a 40 per cent shortfall to the UK’s decarbonisation targets in less than 10 years.
Is the green mortgage any good?
The rate isn’t the cheapest but it’s still competitive. The best buy two-year fixed rate at 80 per cent loan-to-value is currently on offer from Leek Building Society at 1.43 per cent with a £1,394 fee.
Monthly repayments on this deal would be £635 on a £160,000 mortgage taken over 25 years.
By comparison, monthly repayments on the Saffron green mortgage for the same amount would be £638, with the option of bringing that down dependent on home efficiency improvements.
Andrew Montlake, of mortgage broker Coreco, said: ‘This is interesting – truth is no one has really cracked this yet, but I really like their approach.
‘Most green mortgage products have so far been playing round the edges. Barclays and Nationwide, for example, have a green product, whereas Ecology Building Society have been supporting this for years.’
Green mortgages from Barclays are available on some new build properties
Green mortgages from Barclays are available on some new build properties, offering homeowners a slightly lower rate to reflect the higher energy efficiency of new build.
Meanwhile, an approach that took a similar line to Saffron’s retro fit deal came from specialist lender Kensington.
According to mortgage broker David Hollingworth, of L&C Mortgages: ‘It recently launched the eko mortgage which offered a £1,000 cashback once the work on the home had been completed and an improvement to the SAP rating could be demonstrated.
‘Unfortunately they are not currently offering the product but it’s another good concept to promote property improvements and help ease the cost of making those improvements.’
Criteria is another area that can be helpful when it comes to green projects and that is especially true where non-traditional construction might be used, he added.
‘Ecology Building Society understands and supports green projects and those that can refurbish and breathe new life into an existing building.’
Expect more green finance products
In July 2019, the UK government unveiled its Green Finance strategy, designed to balance the UK’s economic policy for growth and domestic and international commitments on climate change.
Part of the strategy is the ‘greening of finance’ which encourages financial institutions to create products that help to deliver on the country’s aims for a greener future.
Saffron’s new mortgage is the building society’s answer to this, and launched this month alongside a green savings deal.
This can be opened online with a minimum deposit of £10 and a maximum balance of £500,000 and pays interest at 0.35 per cent annually, with an additional 0.10 per cent donated to an environmental charity chosen from a list of options.
Montlake said: ‘I would definitely like to see some more green mortgage products available that offer the lowest rates for those properties that are most efficient.
‘The idea of a discount once the borrower can show the property has been improved in this way is a good way to start.
‘For this to really take off, the savings to be made need to really make a difference to people.
‘Potentially we could have a whole range of more beneficial criteria that applies to more energy efficient homes, as well as pricing, such as higher income multiples.’
He warned that more lenders must become more adept at lending on different methods of construction which are more environmentally friendly and sustainable.
He added: ‘I would love to see an industry wide approach where lenders, broker and valuers get together with environmental specialists to help design a range of policies that can really help to change consumer behaviour and set the standard for the next generation of homebuyers.’
New homes tend to have better energy efficiency but there are lots of ways to upgrade an older home to lower its carbon footprint
How to make your property greener
Home improvements that can help to cut your personal carbon emissions include double glazing, upgrading the boiler to a cleaner model and insulating loft and wall cavities.
Installing solar panels, grey water recycling or signing up for local energy generation projects also help to cut your home’s carbon footprint.
Replacing halogen bulbs with LED bulbs is a small thing, but it can make a difference overall, and it can cut lighting costs by up to 90 per cent according to environmental consultancy Carbon Footprint.
They also recommend installing thermostatic valves on your radiators, insulating your hot water tank and installing cavity wall and loft insulation.
Climate change is high on many consumers’ agenda and given our homes can be so big a source of our own energy use, it seems right that the focus is placed on homeowners making improvements.
Replacing your refrigerator and freezer if they’re over 15 years old with a new one with energy efficiency rating of A++ can also cut carbon emissions.
Finally they also suggest replacing your old boiler with a new energy efficient condensing boiler.
At the moment, these upgrades generally require an up front investment from homeowners with previous government grants now withdrawn.
David Hollingworth, of mortgage broker L&C Mortgages, added: ‘We know that climate change is high on many consumers’ agenda and given our homes can be so big a source of our own energy use, it seems right that the focus is placed on homeowners making improvements.
‘One of the issues that can hold back those changes can be the initial expense of making improvements to a property’s energy efficiency.
‘This new mortgage from Saffron takes the right approach in incentivising those that are looking to implement improvements with a price improvement on completion of work that yields a certain degree of improvement in the EPC rating.’
Building societies lead the way towards greener homes in future
Colin Fyfe, chair of the Building Societies Association Green Finance Taskforce and chief executive of the Hinckley & Rugby Building Society
The BSA set up a sector-led Green Finance Taskforce late last year
We are very mindful of the role of mortgage lenders generally and building societies specifically in the UK reaching net carbon zero by 2050.
Somewhere between 15 per cent and 20 per cent of carbon emissions come from our existing homes so our focus is very much on how best to help homeowners and landlords understand what they can do to improve energy efficiency.
The BSA set up a sector-led Green Finance Taskforce late last year which now has over 20 building societies coming together to tackle this challenge. Some societies like Saffron, Nationwide and of course Ecology have products in the market and we anticipate more will come.
We see opportunities in new-build, self-build and retrofitting and are playing a part in the Green Finance Institute’s work. The BSA Green Finance Taskforce signed up to their Coalition for the Energy Efficiency of Buildings in December last year.
Improving energy efficiency will bring with it some great opportunities for new jobs in the wider economy in the years to come.
The work we are doing with the Coalition is focused around projects which aim to overcome barriers like the link between valuation and energy efficiency; how consumers can easily get reliable information about the work that will make a difference to their individual home; where to find qualified people to do this work, and how it can be paid for.
Looking to the future it may be that each home could have a renovation passport as well as an energy efficiency rating.
Improving energy efficiency will bring with it some great opportunities for new jobs in the wider economy in the years to come.
We are also very mindful of doing everything we can to promote a fair transition to a lower carbon economy and specifically lower carbon homes.
It will be challenging, but is also essential.
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