The Government has announced plans to help people taking out so-called green mortgages with a £5 million fund.

Designed to encourage households to make their homes more energy efficient, green mortgages are part of the Government’s Green Finance Strategy that was launched earlier this month.

Several providers offer green mortgages, including Barclays and BNP Paribas Personal Finance. These mortgages provide discounted rates to borrowers that want to make their homes more energy efficient.

Energy efficiency

Currently, UK homes are responsible for 15% of the country’s carbon emissions and the Government has committed to reach a net zero economy by 2050. By improving the efficiency of 17 million homes across the UK, the Government hopes that a significant contribution will be made towards reducing the country’s carbon emissions.

“By rolling out more green mortgages and reducing the costs of retrofitting older homes we’re encouraging homeowners to improve the efficiency of their homes and save money on their energy bills, helping to ensure everyone has access to a warm and comfortable home.”

Launching the initiative, Chris Skidmore, the Energy and Clean Growth Minister, emphasised how the country’s housing stock needs to be modernised if the country is going to meet its targets. “To fulfil our world-leading commitment to reach net zero emissions by 2050, we need an overhaul of our housing stock to tackle the disproportionate amount of carbon emissions from buildings.

“By rolling out more green mortgages and reducing the costs of retrofitting older homes we’re encouraging homeowners to improve the efficiency of their homes and save money on their energy bills, helping to ensure everyone has access to a warm and comfortable home.

Lack of evidence

Green mortgages have been heralded as a way people can receive lower interest rates from providers because they are less likely to default on their loans if their homes are more efficient. This is because energy efficient homes will likely have lower energy bills, boosting homeowner’s disposable income. However, some have said there is not enough evidence to prove this assumption.

Last year, the London School of Economics published a commentary that highlighted how the UK’s buy-to-let industry meant that green mortgages might not take off as planned. “Landlords do not benefit directly from reduced energy bills from energy efficiency measures – the tenants do. So the link between reduced bills and reduced mortgage defaults is less clear for landlords and buy-to-let mortgagors,” they said.