Save Money with a Green Mortgage Even If You’re Not Eligible

The Irish mortgage market has seen a steady increase in interest rates this year, adding an additional hurdle for homebuyers in the already challenging process of purchasing a property in Ireland.

Most prospective homeowners will seek out the best rate possible but would also welcome the addition of some long-term benefits to the environment.

Enter the green mortgage, a product that currently provides the lowest interest rates available in the market today and also claims to support environmentally sustainable living to boot.

What is a Green Mortgage?

Companies across various sectors, including banking, are eager to showcase their commitment to environmental sustainability.

A green mortgage offers a lower interest rate to individuals purchasing a home with superior energy efficiency.

What’s the Real Difference?

In response to hints from the ECB that interest rates would start to fall in June, the large mortgage lenders cut their Green Mortgage rates in the Spring.

This is the opposite to what happened with non-green mortgage rates which, according to the Central Bank, rose for the third month in a row in March to reach the highest level since August 2017.

Take for example, first time buyers who purchase a home that qualifies for a green mortgage with AIB. At today’s rates they will get a 5-year fixed green mortgage rate of 3.65%. Compared to the non-green 5-year fixed rate of 5%, this different is hugely significant over the lifetime of the loan.

If they take a mortgage of €500,000 over 30 years, the savings they will make on interest equates to over €140,000.

How do I Qualify?

Whether you’re purchasing a newly built property or a pre-owned home, as long as it meets the minimum BER requirement, you can benefit from the discounted green rate.

Typically, to qualify, the property must have a Building Energy Rating (BER) of at least B3.

AIB has also recently opened up their green mortgage product to self-build customers.

What’s the Catch?

As with any big financial decision, it’s always important to review all of the information and make a selection based on your specific circumstances.

Even if your BER means that you are eligible for a green mortgage, a non-green mortgage may still be more favourable to you based on your loan to value, deposit size and mortgage term.

Currently, no provider offers a green variable rate. And those who like the reliance and predictability of a fixed rate may also be put off by the fact that green fixed rates are currently limited to a maximum of 10 years.

Is this just Greenwashing?

While green mortgages do provide lower interest rates, they do not inherently include environmental initiatives or carbon offset schemes. Some lenders argue that these mortgages encourage the purchase of energy-efficient homes, thus reducing energy consumption and carbon footprints. However, since all homes built post-2019 are required by law to be A2 rated, these homes would exist regardless.

A green mortgage primarily offers financial benefits rather than direct environmental impact. It might save you money, but additional efforts are needed to contribute to environmental conservation.

Furthermore, higher energy-efficient homes often come with higher price tags, which can be a big barrier for first-time buyers.

My home’s BER is low – is a Green Mortgage still relevant to me?

While most lenders require the property to have a BER of at least B3, Bank of Ireland has introduced a sliding scale discount with their EcoSaver Mortgage. Each time an energy upgrade is carried out and the BER of the home increases, the bank will decrease your mortgage rate.

If you upgrade your existing home’s energy efficiency to a BER of B3 or higher, you might also qualify for a green rate with your current lender or be able to switch to a better rate.

Energy Upgrades

According to the Sustainable Energy Authority Ireland if you live in a detached house with a BER of E1 and have €40,408 available, you could be eligible for the One Stop Shop Service.

The available grants here average €24,098, bringing a total available budget to €64,507. The authority estimates that this amount will cover wall and ceiling insulation, door and window upgrades, heat pump, solar panels and ventilation.

All of these upgrades would bring the BER of your home from E1 to A2 and therefore you would become eligible for one of the lowest mortgage rates currently available.

Green Loans

A green loan scheme was launched by the government earlier this year. The aim of this is to encourage Irish householders to invest in energy efficiency and increase the BER rating of their home.

So, if you don’t have the €40,000 available to carry out the above mentioned retrofit of your home, is it worth considering borrowing the funds?

We contributed to an article by Gabrielle Monaghan in the Sunday Independent recently, examining the cost effectiveness of these loans.

The results were disheartening. While taking out a loan to retro fit your home might increase your green credentials, it’s unlikely to help you make any great financial savings in the short to medium term.

The energy savings you will make each month or year are unlikely to cover the cost of loan repayments and interest each month, and the length of time it will take the average household to pay off the loan and interest will likely be about 19 years.

Having the extra burden of a loan repayment each month, on top of mortgage, bills, and other expenses, at a time when many households are already stretched, doesn’t equate to good financial planning.

Are there any benefits to Green Loans?

As far as we can see, the opportunity with green loans is to use them for short-term borrowing to upgrade your home and become eligible for a green mortgage.

There are risks here, the advantage may be short lived if all mortgage rates fall, and green loans become less attractive or comparable to non-green mortgages.

However, you still shouldn’t end up financially worse off than you are today and you will have a greener more energy efficient home if you have carried out a retrofit.

We would generally advise people to avoid any type of consumer debt, however, there may be a genuine financial opportunity here to significantly reduce your mortgage payments.