Green mortgages

by Charlie Peverett on 12.03.08

Everyone was talking about green mortgages this time last year. But twelve months on, where can you get one? And what exactly is a green mortgage anyway? We decided to take a look around.

Home is where the heart is. And, less cosily, it’s where a great chunk of our carbon emissions spring from too – around a quarter of the UK’s emissions in fact.

So greening the nation’s housing stock is of major importance in fighting climate change. And last year, in his final Budget as chancellor, Gordon Brown said that he wanted to kick-start a new wave of energy-efficient homes.

Mr Brown said he had been talking to banks and building societies to encourage a new mortgage market that would help people make an “immediate capital investment in energy efficiency”. He envisaged that this would cut energy use and energy bills, ultimately paying for itself and increasing the sale value of the home.

Cue a lot of talk of ‘green mortgages’, with lenders big and small jumping in to agree that green was the future - and, of course, that they were happy to be a part of it.

Notably, Abbey announced that it would be launching a range of green loans, and HBOS (Halifax/Bank of Scotland) said it would launch a green mortgage in 2008. Many analysts agreed that the green mortgage market was set to move into the mainstream.

That was almost a year ago. So we were wondering: where did all the green mortgages go?

What’s a green mortgage anyway?

There are still no rules that say what a ‘green mortgage’ has to be – when it comes to saving the planet, it’s still up to individual lenders to decide how they market their products.

However, Mr Brown’s vision of “immediate capital investment” in energy efficiency won’t be hurried along by many of those currently on offer.

Most of the ‘green’ deals out there involve carbon offsetting, whereby a home’s predicted carbon emissions are offset for a while by money invested in carbon-positive projects elsewhere. Theoretically this results in no CO2 emissions overall, and typical offsetting schemes rely on planting trees that are intended to ’soak up’ CO2 from the atmosphere.

Lenders that have adopted the offset approach include the Hanley Economic Building Society, the Teachers Building Society and Giraffe. Mortgage broker London and Country (L&C) says that it plants 50 trees for every mortgage it sells (making “every mortgage a green mortgage”), and recently, financial broker Ethical Investors said that it would offer two years of carbon offsetting on the mortgages it finds for its customers.

Beyond carbon offset

Having paid for the offset, the homeowner isn’t required to do anything further to green the home itself, but not everyone’s happy that these kinds of schemes are green enough. Last year, the Energy Efficiency Partnership for Homes (EEPH) issued a report on green mortgages, which proposed that real green deals should offer something more than an offset.

“Our key message is that a ‘green mortgage’ should help customers reduce carbon emissions by improving the home that the mortgage is offered on,” says the partnership’s David Weatherall. “A green mortgage can’t be just about carbon-offset: paying for carbon savings elsewhere, usually overseas.”

So far, only a handful of lenders go beyond carbon offset. The Co-operative Bank, which has long marketed its products for their ethical dimension, now offers ‘energy-efficient advances’ to customers who want to make improvements to their home, as does the Yorkshire Building Society. The Norwich and Peterborough Building Society provides cashback earmarked for green improvements.

A recent innovation is Ulster Bank’s solar mortgage, which offers low interest rates to customers who invest in photo-voltaic (PV) microgeneration for their homes.

Generally acknowledged to be the greenest of the green is the Ecology Building Society, which lends only on low-carbon new builds, green renovations and restoration projects. Although it is a relatively small, specialist lender, news that the Ecology doubled its mortgage lending last year – despite the credit crunch – may stir a few more lenders into stepping up their green offerings.

A green mortgage future?

Despite widespread reports of increased customer interest in green mortgages of all kinds, they don’t yet appear to have taken off.

“We offer green mortgages because we feel it is the right thing to do,” says Alison Rolls, head of communications at the Norwich and Peterborough Building Society. “However, the take-up is low, which is to be expected as this is still a niche area. The government needs to do much more to promote energy efficiency to homeowners.”

Some analysts suggest that the less serious providers of green mortgages have done it more for the good publicity than the real expectation of any ‘green’ sales.

For most of us, it seems, it still comes down to price – and without tax breaks many green mortgages (particularly those that go beyond carbon offset) struggle to compete with mainstream deals.

“There hasn’t been much of an increase in green mortgage lending,” says Julia Harris at Moneyfacts. “Considering that taking on a mortgage is one of the largest financial decisions we make, paying a lot more for a slightly clearer conscience does not seem to be catching on.”

And what of the green products announced by the big lenders last year?

Well, Abbey launched a ‘green loan’ last November, intended to fund a variety of environmentally-friendly purchases (not necessarily involving home improvement) up to the tune of £25,000. The loan is available at Abbey’s standard rate, and includes the planting of five trees and a free home energy inspection from the Energy Saving Trust.

A spokesperson for Halifax said that the bank is reviewing the market and developing its thinking around green mortgages with a view to delivering “very late this year”.

In the meantime, homeowners who aren’t prepared to wait for financial services to turn a deeper shade of green can find out about grants and offers for improving their home via the Energy Saving Trust.

by Charlie
First published 12.03.08
Updated 25.03.08

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