Green mortgages could become a key part of the UK mortgage scene as the government has pledged £5m to increase the number of environmentally friendly mortgage loans on the market.
As part of its Green Finance strategy, the government opened a Green Home Finance Innovation fund to help the financial services industry offer more green mortgages and other green financial products.
Such mortgage policies reward the homeowner for being ‘green’ meaning borrowers can cut their mortgage rates and save money on their energy bills while reducing emissions from their homes.
For example, once a customer has upgraded the energy rating of their home, their costs will be reduced through a rate cut on their green mortgage product.
The government recently committed to producing net zero emissions by 2050 and pledged to improve the energy efficiency of homes with an Energy Performance Certificate below band C — of which there are 17m homes in the UK, according government figures.
It hopes that financial products that reward consumers for being greener will help reach this target.
The government also plans to fund the development of energy efficient projects and will support additional lending products, like home improvement loans.
The announcement comes alongside the government’s pledge to offer the housing industry the chance to win a share of a £10m innovation fund if companies can design innovative ways of reducing the cost of retrofitting the UK’s old housing stock.
This could include assembling parts of buildings like prefabricated roofs or facades off-site and quickly fitting them to homes to minimise homeowner disruption.
According to the government, homes are currently responsible for about 15 per cent of the UK’s carbon emissions so the move to greener housing is part of the UK’s commitment to a net zero economy.
Energy and clean growth minister, Chris Skidmore, said: "To fulfil our world-leading commitment to reach net zero emissions by 2050, we need an overhaul of our housing stock to tackle the disproportionate amount of carbon emissions from buildings.
"By rolling out more green mortgages and reducing the costs of retrofitting older homes we’re encouraging homeowners to improve the efficiency of their homes and save money on their energy bills, helping to ensure everyone has access to a warm and comfortable home."
Paul Broadhead, head of mortgages and housing at the Building Societies Association, said the BSA welcomed the government's move.
He said: "A few green and eco mortgages are already available from building societies and over time I anticipate that the opportunities for more will be embraced. The financial risks to lenders relating to climate change are becoming steadily better understood and we are working closely with both the Prudential Regulatory Authority and the Financial Conduct Authority to manage this."
Mr Broadhead went on to say that the primary challenge in the development of such products was whether consumer demand materialised and if lenders, in a competitive, low interest rate market, would be able to price such mortgages in a way that differentiates them.