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How far will your mortgage take you along the road to an eco-friendly future?

Some plant trees on your behalf; others demand you meet strict energy-saving targets. Amanda Hall Davis on the lenders who've gone green

The reality of climate change is becoming more evident every year – a fact not lost on the financial services industry, which is busy promoting products such as "green" mortgages. But, setting aside the hype, is it really possible to reduce your carbon footprint through your choice of home loan? Critics claim that, even if such mortgages become mainstream, their limitations and cost to the consumer could far outweigh the environmental benefits.

The decision to take out any mortgage, green or otherwise, should not be made lightly. The repayments will form the biggest part of your monthly household expenses, making it essential to compare interest rates and other fees before you sign up to a deal. Remember, too, that your current lender may be willing to help you finance environmentally friendly home improvements.

There is no standard definition of what makes a green mortgage, and the terms and conditions will vary according to the individual lender. However, many such products work by offering financial incentives – such as cashback, a lower rate of interest, or the waiving of fees or early repayment charges – with the aim of helping homeowners reduce the amount of energy they use. Some lenders will give you a discount on their standard variable rate if your home is energy efficient or if you are borrowing to invest in environmentally friendly improvements. Only seven lenders out of the UK's top mortgage providers presently offer green mortgages as defined by the Energy Efficiency Partnership for Homes, where "the [advantage, discount or cashback] is tied to the energy efficiency of your home, often in the form of a loan to carry out specific measures such as the installation of solar panel technology".

Those who make the grade include the Co-operative Bank, the Norwich & Peterborough, Yorkshire, Ecology, Kent Reliance and Teachers building societies and the Ulster Bank. The Co-op and Norwich & Peterborough both offer a carbon offset element to their green mortgage products.

The green incentive from Norwich & Peterborough is renewed every five years for the term of your mortgage. The lender will plant eight trees a year on your behalf to make your home more carbon neutral.

The Co-op Bank claims that all its mortgages are ethical. It makes an annual contribution to help fight climate change for each new mortgage taken out, funding projects around the world. It also offers a free home energy report for you to gauge the energy efficiency of your property. The standard variable rate (SVR) is 6.99 per cent with discounts available.

Perhaps the greenest lender is the Ecology building society, which will lend only to borrowers committed to reducing their carbon footprint. It currently offers a rate of 6.45 per cent on residential mortgages, with a further reduction for the life of your mortgage to 5.45 per cent if your home meets strict government standards for energy efficiency. The building society also offers a "C-change" incentive for new buyers – 1 per cent discount off its SVR on funds borrowed to install energy-efficiency measures or renewable energy systems. These include floor, wall and roof insulation, double or triple glazing, condensing boilers, solar water heaters and wind turbines.

Making the necessary improvements to qualify for such a reduction in your mortgage costs could set you back thousands of pounds, and going down the green road requires careful thought beforehand. Once the work is done, however, environmentally friendly changes will reduce your energy bills substantially and could make a big difference if you come to sell. For example, a study carried out last year by the Nationwide building society found that potential buyers were more attracted by a property with solar panels than by period features or attic rooms.