New Mortgage Gets Cheaper as You Make Your Home Greener

Homeowners who improve the energy efficiency of their homes will see their monthly mortgage payments fall, with a new green mortgage from Saffron Building Society.

The lender’s new “retro fit” mortgage offers a two-year fixed rate of 1.47% and is available to homeowners and first-time buyers who have at least a 20% deposit and are willing to stump up a £999 fee.

If borrowers upgrade the energy efficiency of their home by at least one band and to a minimum of an energy performance certificate (EPC) rating of E, they can see that interest rate fall by 0.1% for the remainder of the two-year term, decreasing their monthly payments.

"The purpose of this mortgage is to encourage borrowers to upgrade current housing stock to a better energy efficiency rating,” said Laura Bright, product development manager at Saffron.

David Hollingworth, from mortgage broker L&C Mortgages, welcomed the launch of the new green mortgage. “We know that climate change is high on many consumers’ agenda and given our homes can be so big a source of our own energy use, it seems right that the focus is placed on homeowners making improvements," he said.

“One of the issues that can hold back those changes can be the initial expense of making improvements to a property’s energy efficiency.

“This new mortgage from Saffron takes the right approach in incentivising those that are looking to implement improvements with a price improvement on completion of work that yields a certain degree of improvement in the EPC rating.”

Saffron developed the new lending product in response to a recent report from the government’s newly established Coalition for the Energy Efficiency of Buildings (CEEB), which found an “urgent need to increase the pace and scale of investment into the energy efficiency and resilience of UK residential buildings” for the UK to meet its net-zero emissions goal.

Currently, residential and commercial buildings are responsible for around 30% of the country's greenhouse gas emissions. Failing to decarbonise these buildings will mean a 40% shortfall in the UK’s decarbonisation targets in less than a decade.

The government has pledged to bring as many homes as possible to an EPC rating of C by 2035. However, the Department for Business, Energy and Industrial Strategy (BEIS) has calculated that this goal will require up to £65 billion of investment in efficiency upgrades, including new insulation and double-glazed windows. The government has been accused of simply tinkering around the edges of this colossal undertaking thus far, with Chancellor Rishi Sunak’s coronavirus recovery package allocating just £2 billion for building upgrades. 

The government believes innovative lending products are one way to accomplish these home upgrades. Last July it launched a £5 million fund to support the development of environmentally conscious finance products like green mortgages and equity and home improvement loans.

The new retro fit mortgage from Saffron is one of a range of green financial products which have emerged as part of this “greening” of finance. Barclays and Nationwide now offer green mortgages with lower interest rates for efficient new-build homes, while specialist lender Kensington’s eKo mortgage gave borrowers £1,000 cashback if they boosted the efficiency rating of their home. (The eKo Cashback mortgage has since been pulled from the market.)

Alongside its retro fit mortgage, Saffron is also launching green savings deal, the ‘Enviro Saver’ open for deposits between £10 and £500,000 and paying 0.35% interest annually with an additional 0.10% interest donated to an environmental charity. This year the selected recipient is community volunteering charity The Conservation Volunteers.

Bright said Saffron is “keen to create green products … that can help to further enhance the government’s strategy, whilst also taking the first step to a greener future for Saffron Building Society.”

Meanwhile, homeowners looking to upgrade their homes will soon qualify for grants of up to £5k to complete the work, as part of the government’s coronavirus recovery package.