Could ‘Green Mortgages’ be the Solution for Landlords Looking to Improve EPC Ratings?

With the government’s Green Homes Grant off the agenda, and new energy efficiency rules for rental property on their way in, there is a growing need for some form of funding to help landlords meet their regulatory responsibilities. One such solution could be the ‘green mortgage’. Here’s the lowdown on these loans that are designed to support sustainable home improvements.

The Green Homes Grant was launched in September 2020, offering vouchers of up to £10,000 to cover the costs of making energy efficiency improvements to privately rented properties. It was brought in to support the new energy efficiency measures being considered that could see all privately let properties having to meet an EPC rating of C or above from April 2025. But in April this year, the scheme was axed.

Now, landlords with properties that aren’t up to standard are left with a dilemma as to how they will fund the upgrades that are likely to be required to meet regulatory requirements. It is no wonder then that 62 per cent have expressed an interest in ‘green mortgages’, loans that reward landlords for making their properties more energy efficient.

Research by mortgage broker Mortgages for Business revealed this figure had risen from just 10 per cent interest in the noughties, which is likely to be due to the pressure surrounding the proposed energy efficiency rules.

But despite the fact that almost two thirds of landlords have expressed an interest in them, green mortgages are fairly thin on the ground with only four lenders seemingly offering such products, according to This is Money.

What’s available in terms of green mortgages?

Lenders include Keystone, which is offering to reduce its standard buy-to-let mortgage interest rate for landlords with properties over five years old that have an energy performance rating of A to C. This is the only green deal that can be used for both purchasing and re-mortgaging.

Nationwide’s buy-to-let arm, The Mortgage Works, is offering a green further advance. This is an additional loan secured against a property which landlords can use to fund sustainable home improvements such as window replacements, boiler upgrades, solar panel installation, air source heat pump installation and the fitting of electric car charging points.

Paragon offers a Green Further Advance product, designed to assist landlords in undertaking upgrades to properties rated EPC D or lower, although landlords must have been previously accepted for a Green Homes Grant to be eligible to apply.

Finally, the Foundation Home Loans Green Reward Re-mortgage offers a reduced interest rate or properties that have been given an EPC rating of A-C in the past year.

How do green mortgages work?

A green mortgage works on an incentive basis, allowing landlords to enjoy a rate discount once they are able to confirm they have a revised energy performance rating for their property.

Such discounts are more favourable than perks like cashback or lower fees, according to Mortgages for Business director Jeni Browne, who also suggests that landlords should make certain the discount applies to the entire life of the loan rather than just its fixed rate period.

Current legislation in England and Wales requires buy-to-let properties to have at an EPC rating of E or higher. But this requirement is likely to change to a C rating for all new tenancies by 2025, and for all existing tenancies by 2028.

It is reckoned that over 3 million private rented properties won’t meet the higher rating, and to get them there could cost up to £10,000 per property. The government is therefore being urged to encourage more lenders to enter the green mortgages market to help landlords find the funds they need to meet the grade.

Filling the ‘green gap’

Angus Stewart, chief executive of online buy-to-let broker, Property Master, says that there is a ‘green gap’ that needs filling, left in the wake of the scrapping of the Green Homes Grant scheme.

Currently, there are 12 lenders offering green mortgages for owner occupiers, many more than are servicing the buy to let market. Stewart is expecting to more options for landlords, however, especially once they realise it is the right thing to do to help landlords make energy efficiency improvements.

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