As Green issues increasingly play on people's mind the desire to renovate defunct properties or build eco-friendly properties is growing. Mortgage lenders, who typically steered away from such projects, now recognise a growing market and many more are now willing to loan money to fund such projects. This article discusses the rise of the Green Home Loan and the complexities surrounding it.
Only a handful of specialist lenders are offering green home loans. These can either be loans that offer environmentally friendly perks, such as free energy savings reports, carbon offsetting and cash back for energy saving home improvements or those that fund large scale renovations of disused buildings and energy efficient new builds.
For larger projects people will still have there hands tied as to where they can go for a loan, but companies such as Ecology are happy to offer loans on smaller projects that other lenders won't offer mortgages on. It will offer loans on log cabins or timber chalets and properties built using traditional materials like straw. It also offers loans to develop rundown houses, unused churches or derelict buildings. In the past the company has been known to fund projects to develop disused lighthouses, chapels, coast houses, water towers and barns.
One of the problems though of going to such companies, is that as they are dealing with niche loans, they will typically charge a higher rate of interest than for those found in traditional mortgages. Another problem is that companies offering green mortgages often find it difficult to carry out surveys or valuations. The lenders also find it difficult to establish whether they could resell the property in the event of payments defaults and subsequent repossession.
Recognising the growth in the market though, other companies like Norwich and Peterborough are now offering their own flavour of niche green mortgages. These companies offer green loans on new and existing homes with higher than average standards of energy efficiency or existing homes that buyers plan to make more environmentally friendly. Norwich and Peterborough's green loans come with free energy rating surveys and perks such as cash back that can be used to improve the energy efficiency of the home.
Some lenders also have other sales gimmicks on their green loans, for example Norwich and Peterborough say they plant 40 trees for each green mortgage it sells and other lenders say they will plant one tree for each year you have the mortgage.
As concerns over climate change grow there are expected to be more and more lenders offering green home loans. The government is also launching various incentives for borrowers looking to improve the energy efficiency of their homes.
Brokers warn that homeowners should be wary of just how much of what is offered on green loans is a sales gimmick and how much of it is actually a tangible benefit. Some brokers advise that people looking to take out a loan on a conventional property might want to take out a more competitively priced standard loan and then donate to a carbon offsetting scheme on their own. Unfortunately, if your dream home is unconventional like a log cabin, then you are more or less forced to go to one of the companies like Ecology. Ecology has a range of mortgages, including buy-to-let and interest only deals and for properties that have a commercial element or loans to buy woodland that the buyer wants to preserve. At the time of writing, interest rates for residential mortgages start at 6.15% and for buy-to-let at 6.4%. Ecology also offers discount from its standard rates if people are taking out the home loan to increase the energy efficiency of their property. Borrowers can get a 1% discount if they are doing things like modifying the floor, wall and roof to improve energy efficiency or if they are installing low water-usage appliances.
The way some of the Ecology schemes work is to offer an initial loan amount to fund the start of a project, which is based on the value of the property or planning permission and then, as the building work progresses, to reassess the property's value and to issue further funds accordingly. There is an interesting array of sustainable and recycled materials used in the developments Ecology has funded. These have included material such as timber, straw, cob, rammed earth, reclaimed brick and stone. Some of the properties and even underground or built into the side of hills, while others may incorporate good insulation, triple glazing, efficient boilers and renewable energy systems such as solar panels and rainwater collecting systems.
Most green mortgages are only offered for up to 90% of the property's value, but are offered on part-commercial, part-residential schemes like working farms. It is very rare for a green home loan to be offered at a fixed interest rate, or for holiday and second homes.