For a 'green' home loan, go far from the madding crowd

Ethical principles may have spread their roots deep into most of our personal finances, but mortgages are proving barren ground. Just a fraction of homebuyers even enquire about "green" home loans, say mortgage brokers, and the number taken out is even smaller.

It isn't just lack of demand, it's also lack of supply, for just three out of an estimated 150 lenders offer green loans: the Norwich & Peterborough (N&P) and Ecology building societies, and the Co-op Bank.

"Such a limited selection of providers means interest rates tend to be at a premium to standard home loans - although [arrangement and valuation] fees are comparable," says Melanie Bien, associate director at broker Savills Private Finance.

So what constitutes a green home loan? Each lender takes a different stance. N&P offers a "carbon neutral" mortgage that promises to plant 40 trees - eight a year for five years - on the borrower's behalf.

"This offsets the carbon dioxide emissions from the property against the estimated absorption rate of new trees, creating a state of neutrality," says spokes- woman Anna Guthrie.

Only borrowers buying a home with a high "energy- efficiency rating" qualify for this loan, though. This means your property must score at least 100 out of 120 on what the housing industry calls the Standard Assessment Procedure, which considers factors such as cavity insulation and double-glazing.

If you're buying a new-build, this may well not be a problem since many developers work to high energy-efficiency standards.

Remortgagers wanting a green loan, but whose home doesn't yet score 100, will have to prove to N&P that they're investing to make their property green enough.

Meanwhile, these deals are priced well above N&P's other mortgages. Its four-year, fixed-rate, carbon-neutral mortgage charges interest at between 5.08 and 5.28 per cent, compared with 4.88 per cent for its mainstream homes.

N&P's carbon-neutral range also limits borrowers to a 90 per cent mortgage, instead of 95 per cent on most of its standard loans.

At the Co-op, it's a different concept. The bank wraps its entire range of mortgages in ethical packaging by making a donation to Climate Care - an organi- sation that combats global warming - for each year any borrower keeps their loan with it. "The customer doesn't have to do anything," says Andy Hammerton, spokesperson at the Co-op. Every home purchase - but not remortgage - also comes with a free survey to reduce energy loss.

As the green stance applies to all the Co-op's mortgages, the bank can offer more choice and more competitive rates. These include a three-year fix at 4.79 per cent and a lifetime tracker priced at base rate plus 0.49 per cent, giving a current pay rate of 4.99 per cent.

But both these lenders look pale green compared to the Ecology. It will lend only on properties that provide "an ecological payback" - restored derelict structures, say, such as lighthouses, barns and water towers. It is also prepared to lend on conversions and new-builds if the ecological impact of the property provides the basis for its design - for example, where a home is being built using solar panels.

All Ecology mortgages are variable-rate: residential loans are charged at the society's standard variable rate of 6.05 per cent. But borrowers who stick with the lender for over two years will receive a 0.25 per cent reduction.

Homeowners keen to be green but not so keen on the rate premium could look at Nationwide's online energy review at www. nationwide.co.uk/energy.

Even those not in the least green-minded will soon have to shape up. An "energy efficiency" report will form part of the Home Information Pack set to become law for all house sellers from June next year.

'It's not about the cost'

John Walker bought his timber-framed, four-room bungalow in the village of Dolwyddelan, north Wales, four years ago. The property - which was flat-packed from Canada in the 1930s - has a slate roof and isn't connected to a main sewage works.

At first, the 43-year-old horticulturalist struggled to find a mortgage for his home. "From habit, I tried the mainstream lenders, but was refused by all of them."

Following advice from a broker, he applied to the Ecology, which lent him £30,000 for the £50,000 property.

Although he is paying over the odds for his mortgage at 6.3 per cent, he isn't bothered. "It's not about the pennies; if it wasn't for the Ecology, I wouldn't be here now."

Mr Walker grows most of his own food, heats his home with an open fire and recycles almost everything. "I like the idea that my house will reduce down to nothing one day and the insects will take over."