Green mortgages are becoming more popular than ever, and buy-to-let landlords can now choose from a variety of eco-friendly homes.
For many in the BTL industry, having an energy-efficient property with good green credentials is crucial.
A green mortgage is designed to make buying a green home more appealing. In addition to the monthly savings on your energy bills, when you take up a green mortgage on an energy-efficient property, lenders should give you cashback and/or a lower interest rate.
While it would have been difficult to find a single mainstream lender willing to give you preferential treatment based on an energy performance certificate (EPC) a few years ago, there are now a handful of high-street banks that will do so through their own versions of a green mortgage.
Prospective tenants and property investors may have once glanced over energy performance certificates, but they are now an important part of the buying and renting process. Government targets to improve EPC ratings have prompted this trend.
Rental properties and EPCs
Since 2007, all properties sold or rented in the UK have been required to have an EPC, giving the government data on almost half of all residential properties in the country.
58% of houses and flats have an energy efficiency grade of D or G, which is to be expected given that we have some of Europe’s oldest property. According to What Mortgage, approximately one-fifth of all homes were constructed before 1919. *
Meanwhile, newer homes are far more energy-efficient, with 95% receiving an A to C rating, with the majority falling within band B.
The law since 2018 is that a property must have an EPC rating of E in order to be rented out. However, this is set to change in 2025.
Landlords are being incentivised by green mortgages
From 2025, the government has plans to raise EPC requirements for rental properties, meaning that new tenancies would need to achieve an EPC rating of C or higher. By 2028 this will apply to all tenancies.
Some banks across the UK are offering green mortgages that are designed to give landlords a push to become more energy efficient. The current average EPC rating for properties in England and Wales is a D, indicating that many people would need to improve if minimum standards were raised.
According to research by Shawbrook Bank, around a quarter (23%) of landlords believe their buildings are scored a D or lower. They estimate that if landlords cannot improve their rental home’s energy efficiency, they will lose up to £9,500 each year in missed rental payments. **
More options are available
The number of green mortgages available for buy-to-let landlords is increasing, as the market continues to place a greater focus on environmental credentials. ***
Green buy-to-let mortgage solutions currently account for 15% of the whole market, with 353 products available as of March this year. They account for 19% of available deals in the limited business area, with 244 products.
If you want to know more about improving your EPC rating, contact our expert agents today.
*According to What Mortgage
**According to Shawbrook Bank
***According to Mortgages for Business