Once a quirky option for the staunch environmentalists, green and ethical living has become a hot topic over the last few years. As more of us recognise our social responsibility to the planet and our communities it seems only right that our choice of finances should also reflect our higher aspirations for green and better living.
So, what are green and ethical mortgages and can they offer more than just a ‘feel-good’ factor? We take a look at the mortgage markets
What is a ‘Green’ Mortgage?
There are several types of green mortgage but typically it constitutes a loan on a property which meets certain minimum criteria for energy efficiency.
In April 2018, Barclays became the first major UK high street lender to offer a Green Home Mortgage. The product is designed as an incentive for the purchase of homes that have an EPC rating of A or B. Offering lower interest rates than other similar mortgages, the mortgage is currently only available on new builds through certain developers but it is hoped that this will be extended to cover all major housebuilders by the end of 2018.
As well as Barclays, there are several other smaller lenders in the UK that offer green mortgages to incentivise owners of existing properties to invest in energy efficient technology. These include the Norwich and Peterborough Building Society and The Ecological Building Society.
Another variation on the green mortgage is one which is designed to offer buyers the opportunity of making their investment ‘carbon neutral’. In these cases, the mortgage company pledges to plant a number of trees each year for a fixed term; the idea being that the carbon emissions of your home will be offset by your choice of mortgage.
These types of mortgage are more of a gimmick and there is some debate as to whether the action taken by the lender truly results in a ‘carbon neutral’ exchange.
Some lenders will also offer green mortgages which include additional capital to help homeowners to invest in energy efficiency improvements to their home. In these instances, it is usually the property (rather than the person) who is being approved for the mortgage.
Another form of ‘green’ mortgage is one that is sourced from a lender whose corporate investment strategy does not include any forms of fossil fuel development.
In general, there are relatively few green mortgages available on the market and most of these are at a premium to other similar products. However, as more banks and building societies commit to sustainable financing then we can expect to see more of these kind of mortgages available at comparative costs.
What is an ‘Ethical’ Mortgage?
Ethical mortgages are different to green mortgages in that they are not linked to the house against which you are borrowing but are sourced from lenders who meet certain criteria when it comes to their own investment strategy.
Most commonly, ethical mortgages are only available from lenders who do not invest in unethical sectors (including fossil fuels). They are companies that approach investment for their customers based on co-operative values, sustainable housing and community projects and creating a culture that promotes ethical business relationships. Their own investment profile usually includes lending and donations towards projects such as reforestation, charities and climate change.
For this reason, mutual lending societies are the most common way to source an ethical mortgage.
The following building societies tend to score highly for their ethical lending:
- Skipton Building Society
- The Ecology Building Society
- Nationwide Building Society
- Leeds Building Society
- Newcastle Building Society
- Coventry Building Society
The traditional high street go-to for ethical lending, The Co-Operative, has been struggling over the last few years to maintain its profile in this area but are still a good source of responsible, ethical lending.
Choosing an Ethical or Green Mortgage
Before choosing any kind of financial product, particularly a mortgage, we would strongly recommend discussing your options with an Independent Financial Adviser (IFA).
It is important to thoroughly understand the terms of your borrowing, particularly with green mortgages as they may require you to make substantial renovations to your property to meet minimum energy efficiency requirements. Sometimes the cost of these upgrades can make borrowing unviable.
Again, it is important to point out that most green and ethical mortgages come at a premium to other forms of lending. A reputable IFA should be able to advise you on alternatives depending on your goals.
Here at Property Assistant, we work with both local and national IFAs that provide reliable and independent advice. Regulated by the Financial Conduct Authority, we can recommend the services of a suitable adviser to help discuss your needs for any form of home lending, whatever your needs.
Featured image via Public Domain Pictures.