Climate change concerns have resulted in more people paying attention to their own carbon footprint.
While it’s the eco-warriors who grab the headlines and divide opinion, most see the benefits of taking steps to reduce their energy consumption.
Not all of these benefits have to be virtuous – for one, it’s obviously cheaper to use less electricity. Something as simple as fitting double glazing or even switching to energy saving light bulbs can save money and help reduce emissions.
With this in mind, Kensington Mortgages has released a new deal which offers cashback to homeowners who improve the energy efficiency of their home – the catch is that the cheapest two-year fixed rate at 3.04 per cent is far more expensive that rival mainstream deals.
Homeowners have to improve the property’s rating to qualify for the £1,000 cashback
The lender says it will give £1,000 to borrowers who improve their property’s energy rating within a year of buying the home or remortgaging.
But is the deal any good, or are Kensington just jumping on the bandwagon? We take a look…
How does it work?
To be eligible for the £1,000 from Kensington’s ‘eKo Cashback Mortgage’ the homeowner will have to improve the property’s rating on their Energy Performance Certificate within the first year of completion.
Homeowners only need to increase their energy rating by 10 ‘sap points’ – the equivalent to insulating a hot water cylinder and installing low energy lighting, or putting in solar panels, or loft insulation, for example.
|Energy Efficiency Improvement||Points|
|Swap to a condensing boiler||47|
|Install double glazing (UPVC)||4|
|Upgrading roof insulation||13|
|Low energy lighting||2|
|Insulating hot water cylinder||8|
|Cavity wall insulation||13|
Starting from 3.04 per cent at 75 per cent loan-to-value, the eKo mortgage also comes with free valuations, and free legal advice on remortgages.
Mark Arnold, chief executive officer, Kensington Mortgages, said: ‘Many people are becoming increasingly conscious of their carbon footprint and want to reduce it.
‘So making energy efficiency improvements in your home is a no-brainer – you can help combat climate change and save on your bills at the same time.
‘We are particularly excited about this new product because unlike other green initiatives, the eKo Cashback Mortgage is targeted at efficiency improvements to pre-existing properties, rather than focusing on investment in new builds, offering the opportunity to help combat climate change to a much broader set of borrowers.’
Is there anything else like it?
There are other lenders out there that offer ‘eco-friendly’ mortgages, but none that offer cashback for energy efficiency improvements.
David Hollingworth, of broker L&C Mortgages said: ‘There have certainly been “green mortgages” in the past but of course they haven’t all necessarily done the same thing or worked in the same way.
David Hollingworth, of broker L&C Mortgages
‘You could certainly put lender Ecology Building Society into the green mortgage bracket.’
Ecology Building Society currently offers a discounted mortgage to those who use part of the loan on energy improvements.
The Society’s ‘C-Change’ scheme offers a discount of 1 per cent off the lender’s 4.65 per cent standard variable rate on funds borrowed for qualifying improvements.
However, it’s only the funds used for the improvements that get the discount.
For example, if you borrow £150,000 and £50,000 is used for energy improvements, once all work is completed the building society will apply a 1 per cent discount to the £50,000 used for energy improvements and the standard variable rate would apply to the rest of the mortgage.
Even with the discount applied, this scheme still works out as more expensive than Kensington’s new offering.
Hollingworth added: ‘Currently Barclays offers a green mortgage but that is focused on the new build market, seeking to recognise the energy efficiency of new homes by offering a slightly beneficial rate to borrowers purchasing an eligible property.
‘Kensington’s mortgage takes a different approach in rewarding improvements made to any property’s energy efficiency. That makes it useful to those buying an older home.’
Homeowners need to increase their energy rating by 10 ‘sap points’ to qualify for the £1,000
How does it compare?
Rates on offer for the eKo mortgage start from 3.04 per cent for a two-year fixed rate at 75 per cent loan-to-value.
By comparison, Natwest offers a 75 per cent loan-to-value mortgage at 1.29 per cent with a £995 fee, Halifax a 1.26 per cent deal with a £999 fee, and Santander a 1.29 per cent deal with a £999 fee.
Could you cut your energy bills?
Millions of people could be needlessly overpaying for their energy as they fail to switch to providers who offer cheaper deal.
They may also be missing out on the opportunity to help the planet and fight climate change, by switching to green deals that offer electricity from renewable sources and more environmentally-friendly gas.
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The difference is not trivial – on a £100,000 mortgage taken over 20 years, Kensington’s offering would result in monthly repayments of £557, while Natwest’s would result in repayments of £473 – some £84 cheaper per month.
Over the lifetime of the mortgage, this adds up to a significant difference.
Hollingworth added: ‘This deal is clearly not a market beater on rates alone so the cashback will be an essential part of the deal.
‘Some borrowers however may prefer to shop around for a mortgage elsewhere and consider whether they would be able to borrow the money required to undertake the improvements at a lower rate elsewhere.
‘However I think that the Kensington initiative is one that should be applauded, adding an alternative and innovative option to the market.’
While the cashback does make the deal more attractive, it would only go some way to recouping the costs of fitting double glazing or fitting a new boiler – so shouldn’t be seen as making the deal cheaper overall.
Chris Sykes, mortgage consultant at brokers Private Finance, said: ‘Lenders who offer these sorts of mortgages are always offering them at a premium compared to the rates of a high street or other specialist lender.
‘As such, it is difficult to see large financial incentives for opting one of these mortgages over a more mainstream product.’
How to cut your energy bills now
While switching is the main way to cut your energy costs, there are other things you can do to cut your costs quickly. Here we’ve listed five of the easiest ways to cut your energy bills.
1. If you’re in credit to your supplier you can ask for the money back. Households paying via direct debit pay a set amount each month for their gas and electricity.
But for some months of the year – usually when it’s warmer so during summer and spring – your energy account will be in credit. This is your money and it is possible, if you want the cash and the interest, to contact your supplier and ask for this to be transferred to you.
2. Cut your energy usage. It sounds simple enough but if you change the way you’re using your gas and electricity, and if you’re able to reduce your usage, your bills will go down.
Small changes can make quite a big difference. If you turn your main central heating thermostat down by 1˚C, for example, you could typically save around £85 to £90 a year – if you live in a typical three-bedroom semi-detached house with gas central heating.
3. Paying via direct debit and using an online account could cut £10 or more off your annual bills. If you’re able to pay your energy bills via direct debit, so one fixed payment is made per month, this could be cheaper than other methods.
Having an online account, and choosing paperless billing, can also cut your bills, often by around £10 to 20 per year.
4. You can still save money even if you don’t switch suppliers. While typically the biggest savings are still to be had by switching providers, if your current supplier is offering a cheaper tariff than the one you’re currently on, you could switch to it and cut your bills.
To find out if you could save, contact your supplier and ask if what the cheapest tariff available is, if it’s less than your current deal then ask it if you can switch.
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