Deals that help homeowners do their bit for the planet
Kathleen Hennessey looks at a range of mortgages on offer to ecologically minded consumers
Sunday 11 November 2007
The family home stamps a large carbon footprint on our environment. But there are steps you can take to minimise this, one of the more innovative being a "green" mortgage.
A handful of UK lenders now offer home loans that promise to reduce your property's environmental impact. So precisely what makes a mortgage green? Richard Barker, product manager for mortgages at Norwich & Peterborough building society, says there are no hard-and-fast rules: "Different lenders have different criteria."
But according to David Weatherall of the Energy Efficiency Partnership for Homes (EEPH), whose members include more than 400 organisations from the public, private and voluntary sectors: "It's not just about reducing carbon emissions. It's about encouraging a move towards homes that are more energy efficient."
So how do the various green mortgages on offer work? Norwich & Peterborough's CarbonNeutral home loan comes with a commitment from the lender to pay for eight trees a year for five years to be planted on the borrower's behalf. The idea is that these 40 trees will absorb enough carbon dioxide to offset the emissions of the average home during that period, so rendering the property carbon-neutral.
Co-operative Bank instead makes donations to the charity Climate Care. These are used to fund energy-efficiency projects around the world.
Giraffe – part of Bank of Ireland – offsets the average home's CO2 emissions by buying up the carbon credits traded by polluting big businesses. This pushes up their price and so provides a financial incentive for firms to reduce their carbon footprint.
Taking a different stance, the Ecology Building Society will lend only on ecologically sound new-build properties that use sustainable materials or on projects to renovate or convert buildings that would otherwise remain derelict.
Generally, the terms of these loans, including how much you can borrow, flexible features and possible penalties for early repayment, are the same as for any other home loan. However, at present, interest rates on green mortgages tend to be a little higher. Ecology charges a steep 6.95 per cent standard variable rate (SVR), but if borrowers want extra cash to pay for energy-efficient measures such as roof and wall insulation, or solar panels, they can get a 1 per cent discount on the SVR. The discount doesn't kick in until work is finished, though.
The Co-op offers several interest rates, as all its mortgages are green. Recent deals include its 25-year fixed rate of 5.99 per cent. Giraffe currently has a competitive 5.58 per cent fixed for three years. Norwich & Peterborough's green mortgage deal is nearly identical to its standard offering. Mr Barker says: "Our green four-year fixed rate is 6.38 per cent with a £385 arrangement fee, while our standard two- and three-year fixes are 6.34 per cent with the same fee – so the difference is minimal."
Competition may bring down rates further. "By 2016 all new homes will have to be carbon-neutral, so that should boost the green sector," says Mr Barker.
The one niggling problem with green mortgages is that there is no overseer or regulator to ensure they do what they say: borrowers have to take it on faith that their lender really is making those donations or planting those trees.
Mr Weatherall of the EEPH says: "Although more lenders are coming to us for guidance on defining a green mortgage, our definition has no clout yet."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
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