Buy-to-let green mortgages: What’s available to landlords?

Three in five landlords are now interested in a ‘green’ mortgage – but only four lenders are offering them, and only one on new purchases.  

A total of 62 per cent of landlords described themselves as ‘interested’ in the loans, which reward them for making their properties more energy efficient, according to research by mortgage broker Mortgages for Business.

In comparison, only 10 per of landlords who acquired their first BTL property in the noughties said they had been interested in green mortgages when they made the purchase. 

This could be prompted by the fact that landlords would be required to bring their properties up to an Energy Performance Certificate rating of A-C by 2028 under new government proposals.  

Despite this increased interest, there are signs the market is lagging behind as only four lenders appear to offer such a product, according to This is Money’s research.  

Two new lenders launched green products last week, although one is a further advance product which can only be used for making improvements to a property – not for purchase or remortgage. 

Both are offering landlords a rate discount for going green.

The first is specialist buy-to-let lender Keystone, which will reduce its standard buy-to-let interest rate by 0.15 per cent for landlords with properties more than five years old that have an energy performance rating of A to C.

This means that two-year fixed rates for a single-occupancy property start at 3.04 per cent, and five-year fixed rates at 3.19 per cent.

For HMOs and multi-let properties, the rates start at 3.29 per cent and 3.44 per cent respectively. 

This is the only green deal on the market that is available for both purchase and remortgage.  

Change is coming: Landlords could be required to achieve an Energy Performance Certificate rating of C or above by 2028, if new Government proposals get the green light

At the same time, The Mortgage Works, NatWest’s buy-to-let arm, launched a green further advance – an additional loan secured against a property which landlords can take out to fund sustainable improvements.

A rate of 1.49 per cent will be available for loans of between £2,500 and £15,000 up to a maximum of 75 per cent loan-to-value, with no product fees.

Landlords can opt for a two or five year fixed product, and The Mortgage Works says that its green further advance rates are up to 50 per cent lower than standard further advances.

The whole loan must be used to fund sustainable home improvements. 

This could include installing solar panels, window upgrades or replacements, boiler upgrades, installing air source heat pumps or putting in electric car charging points.

Even with these two new deals, there are still limited financing options in the market for landlords wishing to go green – especially as the Government’s Green Homes Grant was axed earlier this year. 

The lenders who do offer such products are as follows: 

As well as its purchase and remortgage products, Paragon also launched a Green Further Advance product in February, which is designed to help landlords carry out upgrades to properties with EPC ratings of D or lower.

However, landlords must have been accepted for a Government Green Homes Grant in order to apply.  

What should landlords look for in a green mortgage?

Jeni Browne, director of Mortgages for Business, says that the best products offer a rate discount, rather than perks such as lower fees or cashback. 

‘A green mortgage means that, once they can confirm they have a revised energy rating for their property, the right lender will recalculate their mortgage rate at a discount,’ she says. 

She also says that landlords should ensure the discount is applied for the life of the mortgage, not just for the fixed period. 

‘There are various mortgage products out there but the best are applied on completion of an energy efficiency project and applied for the lifetime of a mortgage,’ she adds.  

Current legislation in England and Wales requires buy-to-let properties to have at an EPC rating rating of E or above. 

However, the department for Business, Energy and Industrial Strategy is consulting on plans to increase the EPC requirement to a C rating for all new tenancies by 2025 and for all existing tenancies by 2028.

Estimates suggest 3.2 million private rented properties are not at the Government’s desired EPC C rating, and to get them there could cost anything up to £10,000 per property. 

This, combined with the scrapping of the Government’s Green Homes Grant, means lenders have an opportunity to fill the funding gap for energy efficiency improvements via further advance deals.

Angus Stewart, chief executive of online buy-to-let broker, Property Master, thinks that the Government could try to influence lenders in this regard. 

‘We may well see the Government looking to nudge lenders to do even more,’ he says. 

‘A recent policy paper talked about expecting lenders to publish data about their green lending, and the possible setting of targets which would spur action. 

‘What needs filling is the “green gap” that has been left by the scrapping of the Green Homes Grant scheme. 

As it stands individual landlords face having to find anything up to around £10,000 per property if they are not meeting the new required standard.

And there is evidence that lenders are starting to come around to the idea.  

 ‘As one of the UK’s largest buy-to-let providers, it’s important that we support our landlords in making their properties more sustainable and energy efficient,’ says Daniel Clinton, head of The Mortgage Works. 

Eco-friendly: More green mortgage options could encourage landlords to make improvements

‘Buildings are the second largest source of emissions in the UK and even small changes, such as adding insulation to pipes can make a big difference in helping improve the green credentials of properties. 

‘Landlords are required to ensure their properties have at least an EPC E rating, but in future this could be increased to a C rating meaning many will need to make improvements.

‘By launching our Green Further Advance with rates significantly lower than our standard range, we hope this will give landlords the push they need to start making those changes.’  

So could more lenders enter the market – both for further advances and for purchase and remortgage? 

There are 12 lenders offering green mortgages to owner occupiers, and Stewart thinks that this trend could be reflected in the landlord market.  

‘We do expect this to increase as lenders identify the market opportunity, and see that it is also the right thing to do to play their part in helping landlords improve energy efficiency,’ he says. 

‘The Government has made plain its desire to get the entire private rented sector up to an EPC of at least a C by 2025 in terms of new tenancies and all tenancies by 2028. 

‘At present around 67 per cent of private rented properties in England and Wales – around 3.2 million in total – are a band D or below so this is going to be quite a challenge.’