Green mortgages have been introduced to incentivise energy efficiency and sustainability within the property industry.
In Europe, historic buildings are plentiful. Due to lack of existing knowledge when built, the energy ratings of these properties are low and so they are in need of renovation to increase efficiency. A green mortgage may offer a buyer favourable terms if they can prove that the home is energy efficient and meets certain standards. This motivates investment into renovation to improve the EPC (Energy Performance Certain) and produce further green buildings.
Banks and mortgage lenders provide an offer of lower interest rates or increased loan amounts as an incentive under the 'green mortgage' scheme. Research has suggested that green buildings represent a lower risk investment for banks offering a loan. This is for two main reasons. The first being that the property would result in an increased value as a green building, as opposed to a 'brown building' as they are more attractive to buyers. The second reason being that green properties cost less to run due to lower utility bills. This results in a lower risk for the lender as the borrower would be in a better financial position and the 'probability of default' would be lower.
Many landlords and owners are reluctant to begin green renovations due to the initial investment despite the long term rewards. This type of investment tends to be of interest to buyers who work within the property industry, or have experience in this area, as they are accustomed to the risk of long term opportunity.
Currently, few banks offer green mortgages due to reduced evidence that green properties are of lower risk. As interest in supporting environmental concerns escalates, these mortgages and loans will become more uniform.
By 2025, all new tenancies will have to be within a minimum of EPC rating C and all homes in 2028. This energy efficiency will benefit tenants by providing lower energy bills and benefit the environment by reducing consumption.
Currently, there are 29 million homes in the UK and 19 million of these have an EPC rating of C or lower (Governments Climate Change Committee). With these figures, there is still a lot to be done to upgrade homes and more incentives that need to be put in place.