While most of us seem to be aware of environmental and social issues,the concept of green mortgages remains fairly new, writes Lucy Warwick-Ching. "Ethical investment is the fastest growing area in the financial market, but there was a gap in the market for house buyers with ethical concerns," says George Penaluna, spokesman at the Ecology Building Society. A green mortgage is no different from other types of home loan except that the lender is likely to focus on features of the property that are of environmental interest.
Borrowers can choose the shade of green to suit them. At the light end, Norwich & Peterborough building society offers loans that aim to "increase awareness about energy efficiency among home buyers". It has a carbon-neutral mortgage that will offset the amount of carbon dioxide emissions produced by homes. Stephen Penlington, N&P's general manager, says: "It's about time we all began to take responsibility for some of the greenhouse gas we produce."
For every home purchased or re-mortgaged to N&P using a green mortgage, N&P plants 40 trees - eight trees per year for five years. On newly built homes N&P is offering a 1 per cent discount on its variable rate of 5.69 per cent for four years increasing to 1.25 per cent provided houses meet energy-efficient standards. For existing properties, N&P's green mortgage discounts are reduced respectively to 0.75 per cent and 1 per cent, but it compensates with a free energy survey and £500 cashback to be spent on energy-saving measures.
Are borrowers having to pay for their principles? David Hollingworth, mortgage broker at London and Country mortgages, says: "At the end of the day most people look for the best rates - which don't usually come from green mortgages. The Woolwich discount mortgage offers better terms - 2.26 per cent below standard variable rate (SVR) for two years at 3.69 per cent. "It's worth finding out about cheaper mortgages and seeing how much money you could save."
Ecology building society is at the darker end of the green spectrum and lends only on properties that give an "ecological payback", such as derelict buildings, properties in need of major renovation, new energy-efficient homes such as back-to-back terraced houses and organic smallholdings. While most lenders will advance little or nothing on a derelict property, Ecology says it believes every property has a value and will lend up to 80 per cent. Like N&P, Ecology offers energy surveys. Its Earthsaver Remortgage surveys properties to see how environmentally sound they could be. Penaluna says: "To qualify for a mortgage borrowers must agree to comply with 80 per cent of the energy-saving measures in the survey."
Ecology charges a competitive variable rate of 5.07 per cent, with a 0.5 per cent discount in the first year. The society also offers a 0.25 per cent cut in the rate after four years, where borrowers have maintained their mortgage satisfactorily and undertaken promised energy-saving measures. Simon Jones, associate director at Savills Private Finance, says: "Ecology building society's rate is fairly expensive, but it is prepared to begin advancing cash using simply the land as security and is more open to individual building plans."
Another provider of green mortgages is Co-operative Bank. It provides a free home energy report along with the survey and pays Climate Care to offset 20 per cent of an average home's carbon dioxide by planting new trees. Its SVR is 5.09 per cent, though lower lending rates are available depending on the size of the loan.
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