Increased Borrowing Capacity for Mortgages for Greener Homes


Yet another experiment showing the UK means business when it comes to sustainability has been implemented, allowing borrowers to apply for bigger mortgages when purchasing green properties. This brand new scheme is designed to encourage energy efficiency.
The scheme will take into account energy efficiency when making affordability calculations. Factoring in lowers gas and electricity bills could mean borrowers can increase the size of their mortgage by £11,500.
This energy efficiency scheme is due to be launched in June, at which time Welsh help-to-buy loans will begin taking into account the energy rating of new homes. This applies to all new-build homes of a value of up to £300,000.
The aim behind the scheme is to encourage householders to take steps to ensure their house is energy efficient. The current inertia we are seeing does not bode well for a nation hoping to be 100% green in the foreseeable future. What’s more, the Welsh government, the brain behind the scheme, believes that this move could assist more people to get on the housing ladder. It will also, eventually, mean that energy efficiency becomes something people automatically factor in when purchasing property.
It is hoped that traditional lenders will follow suit and make the same changes to their lending policies. The Building Research Establishment, a body that has undertaken substantial research into green mortgages hopes that banks and building societies will see the benefit of offering bigger mortgages. It believes that energy efficiency is an important factor to consider when making lending decisions. If the mortgage industry reacts as hoped, this could signal better sustainability in times to come.
Naturally, lenders are nervous about making this changes to their lending policies. Few banks want to be pioneering and make the first move – particularly when the financial stakes are high. However, Barclays seems to be spear-heading the way forward already by offering a green mortgage product that will give borrowers a discount on interest rates if their new build is within the top two energy bands.
New builds will not be the only properties that can benefit from new green lending. This new approach has great potential for existing homes. For example, someone wishing to borrow more on top of their mortgage for home renovations may be able to increase the amount available to borrow if their renovation will make their home more energy efficient. Such renovations could move homes between energy bands. An incentive like this could wake people up to the reality of the importance of energy efficiency in their home.
This is not the first time a carrot has been dangled before the eyes of householders in a bid to encourage the installation on insulation. Lower stamp duty and council tax discounts have also been put forward. Green mortgages have been praised as symbolically important but eyes seem to be more focused on stamp duty. Stamp duty, it is said, is the most effective mechanism that government has to use as an incentive.

If the stamp duty plan goes ahead, it would be revenue neutral for the Treasury. Although buyers will be given discounts on efficient properties, this will be offset by an increase in stamp duty for inefficient properties. More is expected to be heard on this matter later on in the year. The autumn budget looks set to be when announcements are made, encouraging people to take action to make their homes more energy efficient. 

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