What is a green mortgage?
Green mortgages are rising in popularity, with AIB, Bank of Ireland, Haven and Ulster Bank all offering them to buyers purchasing energy efficient homes. Here’s a breakdown of what exactly a green mortgage is and if it’s worth applying for one.
These days companies across all industries are falling over themselves to try to highlight their green credentials and the banks are no different.
So-called ‘green mortgages’ are all the rage these days and are now offered by several lenders in Ireland.
But what exactly is a green mortgage? Who are they available to? Should you consider one? And are they doing anything for the environment?
What is a green mortgage?
A green mortgage is a mortgage which offers a lower interest rate to people who are buying a more energy efficient home.
In most cases, to qualify for a green mortgage, you need to be buying a home with a Building Energy Rating (BER) of at least B3 or higher.
It usually doesn’t matter if you’re buying a new build or a second-hand home. As long as the property meets the minimum BER requirement you can avail of the discounted green rate on offer.
Green mortgages are currently available from AIB, Bank of Ireland, Haven and Ulster Bank.
What discount is available?
The discount on offer can vary.
For example, Bank of Ireland’s green mortgage offers a discount of 0.2% on all its fixed rates from one to 10 years, AIB offers a discount of up to 0.3% on some of its fixed rates, while Haven’s four-year green fixed rate undercuts all its other rates by 0.4%.
It might not seem like much, but the savings can really add up.
Let’s say you’re a first-time buyer who’s borrowing €250,000 over 30 years and who has a 10% deposit.
AIB has a five-year fixed rate of 2.55%, which equates to a monthly repayment of just over €994 a month. However its five-year green rate for homes with a BER of B3 or higher is 2.25% - the lowest on the market for those with a 10% deposit - or just over €955 a month. That’s a saving of €468 a year or €2,340 over the five-year term.
And if you have a 20% deposit or are a switcher with this much equity in your home, you can avail of an even lower green rate of 2.15% from AIB.
Who are they available to?
Most green mortgages are available to first-time buyers, movers and switchers alike and to those building their own homes.
In most cases, if you make energy efficiency improvements to your home which upgrade it to a BER of B3 or higher you can also avail of a green rate from your existing lender.
And of course lots of grants are available to help you do just that, which you can find out more about here.
Are green mortgage rates doing anything for the planet?
Greenwashing is a phrase that gets bandied about a lot these days.
It’s a form of marketing spin in which PR and marketing strategies are deceptively used by corporations to persuade the public that their products, aims and policies are environmentally friendly.
And it’s hard not to use it here also.
That’s because all green mortgages do is offer people a lower interest rate. A green mortgage doesn’t refer to some type of loan that’s backed by environmental initiatives or carbon offsetting schemes for example - though that’s not to say some lenders aren’t separately engaging in initiatives like these.
Some lenders will argue that by offering green mortgages they’re incentivising people to buy more energy efficient homes, which means they’ll use less energy and have a lower carbon footprint, which is all great for the environment of course. But by law all homes built since 2019 need to be A2 rated anyway.
A green mortgage does absolutely nothing in and of itself to help the environment.
It could help put some money back into your pocket - and there’s nothing wrong with that of course! - but if you want to help save the planet you’ll need to do more.
Also, for many first-time buyers, getting on the property ladder is increasingly difficult and many won’t be able to afford the higher price tags that come with newer, more energy efficient homes. So you could also argue that these offers discriminate against people who - through no fault of their own - can’t buy a higher energy rated home.
Should I choose a green mortgage rate?
If your budget can stretch to a home with a higher BER, or you've recently made energy efficiency improvements to your home, then of course you should consider a green mortgage - just don’t be under any illusions that you’re actually doing anything for the environment by choosing one.
However, be mindful that cheaper non-green rates may actually be available from other lenders depending on the size of your deposit.
For example, Avant Money offers a rate of just 1.95% - the lowest rate on the market - for first-time buyers or movers with at least a 40% deposit or for switchers with this much equity in their homes.
Also, no provider offers a green variable rate at present - while Haven and AIB only offer a green rate on a small range of their fixed rates.
So depending on your circumstances and preferences, a green rate may not be suitable for you even if you qualify for one.
The best thing is to get good financial advice and to compare all rates across all lenders to see what’s best for you.
Are you a first-time buyer or a switcher interested in green mortgages? Remember it’s important to do your research and shop around.
You can use our free mortgage calculator to easily compare interest rates, offers and cashback incentives from all of Ireland’s mortgage lenders.
If you’re a first-time buyer, you may be interested in our recent blog which discusses what banks have the best mortgage rates for first-time buyers.
What do you think?
What are your thoughts on green mortgages? Would you consider applying for one? We’d love to know in the comments below!