Ethical lending and energy-efficient properties

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Ethical lending and energy-efficient properties

With the energy crisis and global warming front and centre of people's minds, more banks and building societies are offering green mortgages. People often ask us for an ethical mortgage too, so what is the difference? Put simply, one is a mortgage to improve or reward an energy-efficient property, the other is arranging a mortgage with an ethical lender.

What is a green mortgage?

The cost of living crisis and particularly rising home energy bills have increased interest in green mortgages. They are however very much in their infancy.

The difference in interest rate between a green mortgage and a standard mortgage is not huge, though several lenders are taking this seriously now.

How do green mortgages work?

Platform Home Loans, part of the Cooperative Bank, has recently launched this useful tool to look at how you can save energy.

A home's energy efficiency rating is measured on an A-G scale by Energy Performance Certificates - EPCs - which were introduced as compulsory to property sales in 2007.

This means if you have an EPC rating of C or above, you can access some preferential options with lenders. These may have lower rates and fees and can sometimes apply to a scenario where you are raising money to improve your home's EPC rating to that of C and above.

You can find your property’s EPC rating here.

Which lenders offer green mortgages?

Green mortgages are provided by a range of lenders, many of whom are looking to take a stance on the ethics of property efficiency.

The issue is particularly pressing for landlords, as the government wants to ensure their rental properties have a minimum EPC level of C by 2025.

Please do contact us for further details.

What is an ethical mortgage?

Green mortgages and ethical mortgages are often confused, but they are not the same. Although they are both aimed at borrowers who are looking to reduce their carbon footprint. An ethical mortgage means considering the credentials of the bank or building society itself, as opposed to the property.

We use research from Ethical Consumer Magazine to inform our decisions on the most ethical providers. Historically, we have a preference towards building societies who are well known for ‘Treating Customers Fairly’, in line with regulatory principles.

We have over 20 years of experience in the mortgage industry, so we know what lenders go the extra mile for their customers and match our ethics in times of hardship and even in fairly mundane matters such as underwriting and valuation appeal decisions. However, the most important principles for many are a lender's assets and investment decisions they make; aligning with Environmental, Social and Governance (ESG) principles that you as our client also hold.

Green mortgages versus ethical mortgages

Green mortgages offer reduced mortgage rates if you buy an energy efficiency property:

• If your home has an Energy Performance Certificate (EPC) rating of A or B then you could get a mortgage with a lower interest rate.

• If you make improvements such as single-glazed windows, upgrade your heating system, or installing solar panels, some lenders may offer you a reduced interest rate

• Some lenders include cashback to upgrade your home's energy efficiency.

Ethical mortgages are loans offered by lenders who prioritise ESG practices in their business:

• Building societies tend to be more ethical because they reinvest their profits for the good of their members rather than shareholders.

• Some lenders, such as the Ecology Building Society, run their entire business on an ethical basis, which means all the products they offer and screened to be ESG compliant.

Are ethical mortgages worth it?

Interest rates have increased over the last few years, but switching to an ethical mortgage lender or taking out a green mortgage doesn’t necessarily involve having to pay huge fees. Independent James has access to the whole mortgage market, so we can source the best deal for you.

More about ethical mortgages

Many of our mortgage clients have saved money by switching to an ethical mortgage. You can read their stories in our case studies section.

Furthermore, Independent James is part of a mortgage industry initiative, the Mortgage Climate Action Group,acting as ethically as possible from an Environmental, Social and Governance (ESG) point of view, adhering to Treating Customers Fairly, and remunerating all employees and contractors justly too.

Please do get in touch if you have any further questions on these matters.


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