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Why the rise in green mortgages could help landlords meet net-zero targets

With the world becoming increasingly environmentally conscious, pressure has also spread to the lettings sector to improve its green credentials.

Last year, Prime Minister Boris Johnson announced his plans to reduce the country’s carbon footprint in a bid to reach net-zero emissions by 2050.

In eco-friendly initiatives directly affecting the lettings sector, the UK government introduced plans to ban the installation of gas boilers, include electric car charging points in all new homes and strengthen rules surrounding Energy Performance Certificates (EPCs).

With there being increased pressure on landlords to maintain energy-efficient properties, the substantial rise in green mortgages directed towards the buy-to-let (BTL) sector could help landlords achieve these goals.

What are green mortgages?

‘Green mortgages’ are still quite new, but they were created to encourage property owners to make more energy-efficient improvements to existing properties or to purchase eco-friendly homes.

Green mortgages offer a financial incentive for those looking to make their properties eco-friendlier or buy green properties.

These types of mortgages tend to have a lower interest rate and are intended to encourage homeowners to consider their environmental impact.

How to qualify for a green buy-to-let mortgage

Most green buy-to-let mortgages will require a property to have a minimum energy performance certificate (EPC) rating of C. There are some with more stringent requirements which offer more competitive rates for A-B properties. Landlords should keep in mind that although the current minimum EPC requirement for a buy-to-let property is E, this could be changing to C for new tenancies in 2025 and all tenancies in 2028.

In addition, lenders also have other criteria to determine if properties will fit their range. Some products can be used on new-build properties which would be expected to have a higher EPC rating. However, some require the properties to be more than 10 years old, which encourages homeowners to improve the older properties that are negatively affecting the environment.

Rise in green buy-to-let mortgages

Perhaps in response to the government’s net-zero targets, there’s been a significant rise in the number of buy-to-let green mortgages. According to broker Mortgages for Business, there are now 353 green BTL mortgage products on the market right now – its highest ever level.

The number has risen sharply for seven consecutive months; in August 2021 there were only 118 green BTL mortgages on the market. Overall, eco-related mortgages now account for 15% of all BTL products on the market.

The trend is also more prominent for incorporated buy-to-let investors, with 244 deals available, making up almost 19% of the total.

Mortgages for Business’ managing director Gavin Richardson said: “At 14% of the UK’s total emissions, housing has a greater carbon footprint than the farming industry. So there’s no question that improving energy efficiency is a critical part of tackling climate change.”

However, Richardson said the criticality of meeting the climate change challenge doesn’t make it any easier for landlords.

He continued: “The average bill for landlords looking to improve their property is between £6,000 and £15,0000. Only 38% of landlords told us that they could afford to invest in making their BTLs more energy efficient. So mortgage lenders have a huge part to play in helping landlords to fund their efforts – they have a responsibility to provide the facilities to allow landlords to fund this.”

Here at Holland Properties, we have been an established estate and letting agent since 1999 and can help to manage your tenancies, allowing you to get the most from your rental properties as a result. We operate across London, with our head office based in Docklands.

For further guidance on any part of the lettings process, please contact us today. You can also request a free and instant online valuation to see how much rent you could be charging in the current marketplace.