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The mortgage that gets cheaper as you save energy

Once the preserve of hippies and tree-huggers, environmental awareness is now firmly mainstream. It’s even trendy in some circles.

Most of us recycle some of our household waste, and many people pick local produce over food that has flown halfway across the planet.

But when it comes to choosing a mortgage, can you make an environmentally friendly choice, and if you do, will you have to pay more for having a conscience?

Green mortgages

Before the credit crunch, there was a handful of lenders offering ‘green’ mortgage deals – one of which even included the planting of a tree in a forest in Norfolk to offset the carbon produced by building your new home.

Sadly that deal no longer exists, and the appetite from lenders to provide environmentally credible mortgages has waned with the credit crunch and subsequent recession.

Many lenders have focused on the mainstream mortgage market, so anyone who doesn’t tick the right boxes, or is buying an unusual type of property, is simply excluded from many deals.

However, there is one lender that not only lends on out-of-the-ordinary properties, but also has strong green credentials.

Environmental appeal

The Ecology Building Society was founded in 1980, and is dedicated to building a greener society.

It does this in three ways. Firstly, the society lends mortgages that support sustainable building practices that respect the environment. In practice this includes buildings constructed from unusual materials and properties that require extensive renovation for example.

Secondly, it focuses on enabling the construction of affordable homes, including shared ownership and housing association projects, particularly in rural areas, as well as co-operative housing projects.

And thirdly, it incentivises lower carbon lifestyles through a series of mortgage discounts. In other words you get money off your mortgage for being energy efficient.

The C-Change Mortgage

The Ecology’s C-Change mortgage is arguably the greenest homleoan on the market. It works like this:

The deal is priced at the lender’s standard variable rate (SVR) for the duration of the loan, which is currently 4.9%. It comes with a cheap £250 arrangement fee and is available up to 85% of the property’s value. Interest is calculated daily.

That doesn’t sound particularly exciting but the mortgage comes with a choice of three C-Change discounts for certain energy-efficient measures. These include:

C-Change Sustainable Homes – A discount of up to 1.25 percentage points if you're building or buying an eco-home. The level of discount offered depends on the energy standard achieved in your home - so the more efficient your home is, the more you save on your mortgage.

C-Change Retrofit – A discount of 0.25 percentage points for every grade improvement in your home's Energy Performance Certificate (EPC) rating. The discount applies to the whole of the mortgage, for the lifetime of the loan. And of course, you will also save money on your energy bills as you improve your home’s energy efficiency.

C-Change Energy Improvements – A 1% discount from the SVR for funds used for specified energy saving or renewable energy systems, from fitting triple glazing to wind turbines.

Are the mortgages any good?

They are certainly ‘good’ in one sense of the word, but it depends on your circumstances as to whether the deals are financially competitive.

The products are available up to 85% of the property’s value, which is pretty generous, and for those who also benefit from the biggest discount of 1.25 percentage points off the SVR, that could mean a pay rate of 3.65%.

When you compare this to other 85% loan-to-value mortgages it is pretty competitive, especially as the rate and the discount are for the length of the loan.

However the Ecology mortgage, even with full discount, can be beaten, though not by much.

For example, Leek United Building Society has a three-year discount at 3.24%, with a £995 fee, and Chelsea BS has a fee-free two-year tracker at 3.59%, and a two-year fix at 3.39%. All of these deals only require a 15% deposit.

Sliding scale

Of course, not all of Ecology’s borrowers will be limited to 85% LTV deals because many will have a larger deposit or level of equity.

While this won’t do them any favours on the C-Change mortgage, which has just one LTV tier, it will mean they can access much more competitive deals elsewhere.

For example borrowers with 25% upfront can access mortgages from 2.59%, and those with a 40% deposit or equity can get hold of two-year fixed mortgages from as low as 1.99% and even five-year deals from 2.79%. Plus the best term trackers start at 2.54%.

In other words, the bigger your deposit, the less attractive the C-Change deals are compared to the wider market.

And of course, these comparisons are all based on the largest C-Change discount of 1.25 percentage points from the 4.9% SVR. There will be many borrowers that don’t achieve the full discount, and get 0.25% or 0.5% off the rate for example. Again this makes the proposition less competitive.

But let’s not be too harsh. The deal comes with a low set-up fee and it lasts for the duration of the mortgage term, and that will appeal to some borrowers.

Plus, the Ecology is providing something innovative, unique and environmentally sound, and many borrowers will be willing to pay a premium for that. After all, it’s the same as ethical investors accepting a lower return than those who invest in tobacco firms.

Ultimately, it’s for the greater good.

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This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker before acting on anything contained in this article.

We tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

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