Green Mortgages: Is The Carrot Worth The Stick?

Author David Baird • 8th Nov 21

As the UK government looks to achieve its target of becoming Net Zero by 2050, various policy ideas are cropping up in a variety of industries. The Financial Services industry is no exception. According to its Net Zero Strategy, which was published earlier this month, the government has laid out a variety of proposed financial incentives to help the UK on its way to a greener economy. One of these is the plan to work with mortgage lenders to provide a direct link between our mortgages and the energy performance of our homes.

These so-called “green mortgages” sound like an excellent initiative at first, but there are two sides to every story. In this case, the proposed changes to mortgages will be seen as either a “carrot” or a “stick”, depending on your financial situation and the property you live in.

The Carrot

According to the ‘green mortgage’ concept, having an EPC rating of either A or B on your home will earn you a better deal on your mortgage. Some providers, such as NatWest and Halifax, have already implemented this pricing strategy, offering discounted interest rates and cashback on your mortgage respectively. As our Net Zero target looms and government pressure increases, there is little doubt that other lenders will soon follow suit. At the time of writing, mortgage interest rates have never been lower, so releasing equity to make your home more energy-efficient right now could reap benefits in years to come.

The Stick

Whilst this all sounds great, the simple fact is that the benefits only apply to those with energy-efficient homes and/or those who can afford to improve the efficiency of their homes. However, there will inevitably be another side to this. Properties with poor EPC ratings will likely become un-mortgageable in the future, forcing homeowners to make immediate changes to properties to bring them up to standard. For those that can’t afford to do so, this could create significant debt and/or dramatically decrease the value of their property. But this isn’t the only problem. The changes will also incite a rise in “mortgage prisoners” - people trapped in extortionate mortgage contracts, unable to find better deals due to the energy rating of their home.

Our advice at the moment is to seek guidance from an expert, check your property’s EPC rating and find out what can be done to improve it.

Our team of expert financial planners can guide you through your EPC rating and how it could affect your interest rate now and in the future. Get in touch today for our support.

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Sources:

https://www.theguardian.com/environment/2021/oct/19/mortgages-tied-to-green-home-improvements-considered-by-uk


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