The good life

Going green doesn’t have to mean building a pigpen in your back garden or getting up at 6am every Saturday to sell your homegrown organic vegetables at the local market. With banks and building societies currently catching the green bug in increasing numbers, you can do your bit for the environment and sort out your mortgage at the same time.

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The green mortgage sector has gained momentum in recent months and years. Government support for environmental awareness – expressed most recently in the 2007 Budget with the pledge to cut stamp duty for zero-carbon emission homes – has prompted lenders to address green lending. Although many have since announced plans to develop such products, there are currently only three or four offering green mortgages in the UK, each with a different spin on the term “green”.

Melanie Bien, director at mortgage broker Savills Private Finance, says: “The Co-Operative’s approach is generally ethical, screening all business partners through its Ethical Policy Unit, and doesn’t relate to the property itself as such. Norwich & Peterborough’s (N&P) approach focuses more on its lending criteria – for every green home loan taken out, N&P will plant 40 trees (over five years). These trees, planted by Future Forests, help to offset the carbon dioxide (CO2) emissions from the property. These green mortgages are available only to those who are buying a new home with a high-energy efficiency rating or for properties whose owners are looking to improve energy efficiency. The Ecology Building Society, meanwhile, uses its deposits to grant mortgages on properties and projects that help the environment.’

Shades of green

The Ecology Building Society has twenty-five years under its belt as a green lender and only offers green mortgages. “Our mortgages are green as they are provided by a truly green lender and are only available for properties and projects that positively benefit the environment,” explains the spokesperson for the Ecology, Jenny Irwin.

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This can range from “recycled homes” – that is, a run-down or disused property that the borrower wants to renovate and live in – to new ecologically built homes, using sustainable, natural materials and incorporating energy efficiency and renewable energy. The Ecology will also lend on properties that are being upgraded to become environmentally friendly. In addition, it offers commercial and buy-to-let mortgages for small woodlands, organic farms and small-scale developments.

Catherine Turner, spokesperson for Co-operative Financial Services – another lender with a strong reputation for ethical and environmental products – believes more borrowers are now interested in helping the environment via their finances. “We are finding that an increasing number of customers are choosing their mortgage with us as a result of our ethical and green credentials, rather than rate or service explicitly.”

Competing with the mainstream

But if there is a niggling doubt at the back of your mind about whether going green means sacrificing value for money, you have nothing to worry about, according to Ecology’s Irwin. “Our borrowers are in a win-win situation,” she says. “Unlike some lenders, our residential mortgages have very low fees – £150 application fee and £75 exit fee. We do not charge a higher lending fee and our valuation fees are kept low too. Our standard variable rate (SVR) is slightly higher than others – currently 6.60 per cent. However, after two years borrowers can receive a 0.25 per cent discount for the remaining term of the mortgage.”

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But, some commentators still maintain that the current size of the market is holding it back. “The problem with green mortgages has been the small choice and, consequently, often higher rates of these products,” David Hollingworth, spokesperson for broker L&C, says. “This has led to a situation where the borrower has to choose between a deal that satisfies their green conscience, against the negative of paying more for their mortgage.”

In an attempt to remedy this, L&C has pledged to plant 50 trees for every mortgage it completes this year. He explains: “Our initiative is aimed at making every mortgage green without having to compromise on the interest rate, by attaching the tree-planting to the whole market.”

Savills’ Bien still feels the sector is “crying out” for a big name lender to launch a green product. But how long will borrowers – and the sector – have to wait for that to happen?

New launches

HBOS has announced plans for a green mortgage but, as yet, is unable to confirm any details beyond a scheduled launch sometime in the second half of 2008. “If you need a mortgage now or are looking to remortgage, you will need to decide whether it is more important to you to get the best rate of interest or to be green,” Bien advises “If the former is the case, I wouldn’t waste time in taking out the best deal on the market. There is a chance that rates will start to come down next year when HBOS enters the sector, but that is a long time to wait.”

A number of building societies have also announced plans to go green this year: Hanley Economic, Chorley, Scarborough and Saffron all have plans to launch green products of various shades in the near future. But is this all a passing fad or will the green trend last?

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Hollingworth believes it will. “The general public now has a much better awareness of the issues and more of us are adapting our behaviour, even if only through simple measures like recycling and the use of energy saving bulbs. Home Information Packs (HIPs) will see Energy Performance Certificates become compulsory for any property put on the market after 1 June 2007 and that can only help to hammer home the impact of our homes on our environment,” he says.

Alison Rolls, spokesperson for N&P, predicts big changes for the sector going forward. “The market will develop very quickly over the next few years. Due to increased consumer demand, every lender will have to consider its own carbon footprint and the products it provides.”

The growth of green mortgages has been accelerated thanks to the spotlight placed on environmental matters by the media and politicians in recent months. As interest in climate change and green issues swells among the general public, the green mortgage market should receive a boost from the creation of new products and more competitive rates.