Cover feature: Tending the greens
There has been a surge in the number of lenders offering green mortgages in recent years.
Unfortunately, the same cannot be said about consumer demand for these products.
In 2019 there were just four green mortgages available, according to the Green Finance Institute. Today, mortgage sourcing system Twenty7tec lists 3,260 ‘green’, ‘eco’ or energy performance certificate (EPC)-related products across the residential and buy-to-let (BTL) market.
SPF Private Clients CEO Mark Harris says this shows that green mortgages are no longer “a quirky product” offered by specialist lenders or smaller building societies.
“The largest 10 lenders in the market all have their own green deals, offering preferential terms to those buying more energy-efficient homes, or borrowing to improve the environmental performance of their current property.”
A more joined-up approach might combine government grants with cost-effective mortgage funding
However, despite the wide range of products, demand remains low.
Cutting Edge Mortgages founder Rebecca Wilkins says: “We’ve seen no increase in consumer demand for green mortgages at all, despite the significant jump in household energy bills in recent years.”
So why is there such a mismatch between supply and demand? Connect Mortgages CEO Liz Syms says the issue is largely about product design, rather than customer apathy towards the environment or energy efficiency.
Many green mortgages offer lower rates or cashback for those buying the most energy-efficient homes, typically with an EPC rating of A or B. Syms points out that these are largely attractive to new-build buyers, with around 85% of such properties meeting these criteria. She says they are less relevant to those buying older properties, with the majority of existing housing stock being assessed as having an EPC of C or lower.
“This does nothing for the client in a Victorian terrace who actually needs to spend money on the house,” says Syms.
Potentially of more interest to a wider cohort of borrowers are ‘retrofit’ mortgage options, providing additional borrowing or incentives to help homeowners fund upgrades to an existing property, with a view to improving its EPC rating and cutting the cost of future household bills.
There is definitely interest among landlords for these products
Again, these typically offer cashback and/or rate reductions. But Syms explains that the main problem is the size of these incentives.
“The discounts are typically a fraction of a percentile point, worth a few hundred pounds a year on an average loan, compared to a retrofit bill that might run into thousands of pounds.”
London & Country associate director David Hollingworth agrees this is a problem, particularly given the high upfront costs of installing solar panels, heat pumps or insulation, relative to the subsequent annual savings on bills. As he points out, the incentives on these green mortgage deals, whether cashback or a lower mortgage rate, are not significantly moving the dial on ‘payback’ calculations — and it may still be 10 years-plus before homeowners see any overall financial benefit.
“One of the big things to overcome is the sheer cost of retrofit work,” says Hollingworth.
“This makes it hard for homeowners to finance these improvements, with the longer-term payback often looking impractical for those who may not be planning to stay in that property for this length of time.”
Ecology Building Society rewards borrowers with more significant discounts off its SVR for making their property more efficient
There can also be additional complications when it comes to applying for these retrofit loans.
TMA Club senior product and business manager Rob McCoy says: “Where a borrower wants to make home improvements to increase their EPC, typically their lender will require estimates for the cost of the works and how this will improve their current EPC rating before releasing part or all of the loan.
“Some lenders may retain the loan monies until the work has been completed.”
Product availability
Despite these challenges, brokers say greater competition in this market is leading to more keenly priced products, although McCoy points out that broker sourcing systems do not consistently filter for green products, which also impacts take-up.
Both Hollingworth and Harris point to the Green Living Reward deals offered through Lloyds Bank and its Halifax brand. These provide cashback rewards of up to £2,000 towards qualifying home improvements, such as insulation, solar panels or a heat pump. Hollingsworth notes that Lloyds has advanced more than £6m to customers through this initiative.
Wilkins says HSBC is offering a £2,000 cashback incentive alongside competitive interest rates for its green products with lower cashback tiers.
We see demand for green mortgages in buy-to-let, but this is largely due to regulation
She adds: “Skipton Building Society also stands out by supporting higher-LTV borrowing on its green mortgage products, offering deals up to 95% LTV on a repayment basis.”
Brokers highlight Nationwide’s preferential loan terms for specific energy efficiency improvements. The mutual offers an interest-free term on loans up to £20,000 for up to five years.
“There are caveats, though, as to which improvements qualify, and 100% of this money must be spent on this and supporting works,” says Harris.
McCoy adds: “A lender worth pointing out is the Ecology Building Society, which specialises in green finance and rewards borrowers with more significant discounts off its standard variable rate for making their property more efficient.”
Ecology Building Society’s senior mortgages product and proposition manager, Daniel Capstick, says green mortgages are “part of its DNA”, with the mutual one of the original providers of these products 20 years ago.
Capstick welcomes increased competition, though, saying this should widen awareness of such products, helping more people improve the energy efficiency of their homes — ultimately helping to reduce the UK’s carbon footprint.
He says one of the firm’s key USPs is that its pricing is specifically linked to EPC improvements, rather than the size of the loan, with larger savings to be made by homeowners who target more energy-efficient homes.
One of the big things to overcome is the sheer cost of retrofit work
“These discounts will continue for the life of the loan, rather than just for an introductory two-to-five-year period.”
Capstick says this means it can be more competitive at larger LTVs for those with “ambitious targets” to improve their property.
Brokers point to potential benefits regarding affordability.
Countrywide Surveying Services associate technical director Steven Lees says: “This issue often receives less attention. But as lenders increasingly recognise the relationship between energy efficiency and household running costs, this may support stronger affordability assessments.”
In other words, cheaper utility bills may unlock higher borrowing levels.
Lees adds: “This may encourage investment in efficient properties, and there is the possibility that market demand becomes influenced as much by increased borrowing capacity as by the energy performance benefits themselves.
A more accurate and robust EPC framework could both strengthen the demand for energy-efficient homes and support the green mortgage market
“This may become an increasingly important consideration as green finance products evolve and lenders seek to link property efficiency more directly with borrowing decisions.”
Hollingworth says such trends are already becoming evident via the Octopus Zero Bills initiative, supported by lenders such as Perenna and, more recently, Santander.
He says: “Santander could remove the bills on eligible properties, which could help with higher borrowing.”
Capstick also points to sales data from Rightmove, showing a premium to homes with higher EPC ratings.
“For the first time this shows the genuine valuation premium of more energy-efficient homes.”
Driving future demand
Many in the industry want to see more generous incentives from the government to kickstart more substantial consumer demand.
Wilkins says: “Boosting take-up will likely depend on government-led initiatives, such as subsidised retrofit schemes, tax incentives or stricter efficiency mandates to drive necessary home upgrades.”
Until the revised methodology is fully implemented, there will be uncertainty around how energy efficiency is measured
Capstick says consumer demand could also be driven by a more “joined-up approach”, which might combine government grants with cost-effective mortgage funding — so people need to borrow less. But he adds there is also a requirement for more education and effective signposting to approved manufacturers and installers, to promote confidence when it comes to carrying out these major home improvements.
Given the precarious state of the nation’s finances, few are expecting more government giveaways. Capstick points out that the government has already pledged £15bn to the Warm Homes Plan over the next four years, which he describes as a “generous funding commitment”.
Legislation in flux
The BTL sector has made more significant progress on energy efficiency, albeit this has largely been due to a ‘stick’ rather than a ‘carrot’ approach. It remains to be seen whether a similar tactic, or ‘minimum’ required standards, could be introduced in the residential sector.
Syms says: “Where we see demand for green mortgages is in the buy-to-let market, but this is largely due to regulation. Landlords have a date, October 2030, to reach the equivalent of EPC C. Homeowners have no equivalent deadline.”
This impending regulation is clearly driving change in the market. Recent data from Paragon showed that 56.4% of its BTL lending in the first half of this year was on properties with an EPC rating of A to C. This compared to just 49.9% a year earlier.
McCoy agrees that BTL is the main source of demand.
As lenders increasingly recognise the relationship between energy efficiency and household running costs, this may support stronger affordability assessments
“There is definitely interest among landlords for green mortgage products, partly because of a push by the government to improve the energy efficiency rating of private rented stock.”
But he adds: “While green mortgages incentivise landlords to improve the energy efficiency of their properties, there will be cases where either the improvement work can’t be carried out or it would be prohibitively expensive. In those cases, many landlords are deciding to sell up and buy a new-build instead.”
Legislation is in flux at present, with a new EPC framework due, after some delays, in the second half of 2027. This will fundamentally revise the current A-to-G rating system, with four new separate metrics, covering building materials, heating systems, energy costs and ‘smart’ readiness.
Supporters say this will give homeowners, buyers and landlords a clearer picture of how sustainable and efficient a property is in practice. But brokers point out that key details of this new ratings system have still to be finalised.
Lees says: “Until the revised methodology is fully implemented, there will be uncertainty around how energy efficiency is measured and how ratings compare with those under the current system.
Discounts are typically worth a few hundred pounds a year on an average loan, compared to a retrofit bill that might run into thousands of pounds
“This may make some lenders and borrowers cautious about making long-term decisions based solely on existing EPC ratings.”
But Lees adds that, in the longer term, a “more accurate and robust EPC framework” could both strengthen the demand for energy-efficient homes and support the green mortgage market.
It could achieve this by giving lenders greater confidence in the energy performance data underpinning their products, and also by helping consumers better understand the benefits of energy efficiency improvements.
This article featured in the October 2026 edition of Mortgage Strategy.
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