Green mortgages – are you eligible for cheaper buy-to-let finance?
Recently, we reported how landlords were rushing to buy energy-efficient properties. The reason? Currently, most rental properties must have an Energy Performance Certificate (EPC) with a rating between A and E. Under new proposals, all new tenancies must be in bands A to C by 2025. All rental homes will need to comply by 2028. As a result, some landlords are selling on less efficient properties. However, some are taking a interesting approach and switching to so-called ‘green mortgages’.
What are green mortgages?
Green mortgages appeared on the market in March 2021. They’re designed for buy-to-let investors who want to invest in more energy efficient properties, or who want an incentive to improve the efficiency of existing ones. The loans normally offer a lower interest rate, though some allow extra borrowing or offer cashback.
Why haven’t I heard of green mortgages before?
Quite simply, it has taken quite a while for green mortgages to come to market. According to This is Money, there were just four green mortgage deals available in March 2021. This rose to more than 350 by March 2022. These loans currently comprise 15% of all buy-to-let products.
Do I qualify for one of these deals?
Each lender has different eligibility criteria for green mortgages. Typically, you’ll need to make your property compliant with an EPC rating of A to C (or buy a new property within those bands). However, lenders such as Natwest insist on an A or B rating. It’s also worth knowing that you can’t apply direct to many lenders and will need to use a broker to get a fuller range of deals.
How much can I save?
Again, the rates you pay will depend on your personal circumstances. This is Money cites the example of Barclays. If you have a deposit of 25%, a two-year fixed-rate green deal will attract interest at 1.99% instead of 2.09%. By comparison, Natwest will offer 1.99% instead of 2.25% for the same fixed term if you need to cover 65% of the property’s value. (Note that a fee of £995 would also apply to both types of Natwest mortgage).
Are green mortgages worth it?
Yes, green mortgages can be worth it in the long term. If your buy-to-let properties have an EPC rating of A to C, then you don’t need to worry about falling foul of the new rules in 2025. If your properties aren’t energy efficient enough by then, you won’t be able to re-let them.
Using a green mortgage to add a new A to C rated property to your portfolio certainly seems like a no-brainer. However, you may have to invest in upgrades to existing properties before you can switch to a green mortgage. If you’re a THP client and would like to talk through your accounting options, please feel free to get in touch.
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.
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