Small is beautiful as lending minnows rise to the green mortgage challenge

Small is beautiful as lending minnows rise to the green mortgage challenge

A handful of the country's smallest building societies are leading the way in helping homeowners to make their properties more energy efficient, in response to the government's request.

Gordon Brown announced in his Budget speech on Wednesday that he had been talking to the banking community about the introduction of 'green' mortgages. At the moment only three lenders, the Co-operative Bank, the Ecology building society and the Norwich and Peterborough building society, offer green home loans.

These mortgages work in one of two ways: either the lender will make some sort of 'donation' towards the environment on the borrowers' behalf, or, in the case of the Ecology, they will lend only on 'ethical' properties.

But the All Party Parliamentary Climate Change Group wants more banks and building societies to get on board and sent a letter to the country's top 100 mortgage lenders in January asking them to detail their plans, if any, for the launch of environmentally friendly financial products.

It wants lenders to help homeowners improve the energy-efficiency rating of their properties to tie in with the launch of Energy Performance Certificates, part of the mandatory Home Information Packs, in June.

Yet of the 29 respondents to the letter it is the tiny Chorley, Hanley Economic, Scarborough and Saffron building societies that are among the few who are ready to launch green mortgages this spring.

According to the All-Party Group,.....continued below

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the definition of a green mortgage is given by the Energy Efficiency Partnership for Homes. Financial incentives must be offered and they should include either a competitive interest rate compared with the lender's other products, cashback, no fee or a higher loan to value. For their part, borrowers must either have a home that has an energy performance above that of the minimum building regulations standard, or use the money to carry out suitable measures to improve the energy efficiency of their home.

Among those lenders who did not reply to the All-Party Group were two of the country's biggest lenders, the Halifax and Nationwide. The Halifax has since said that it will launch a green mortgage 'some time next year', while the Nationwide and another sizeable lender, the Bradford & Bingley, have no plans to do so.

Abbey, the second largest lender in the country with almost 10 per cent of the mortgage market, also said it had no plans to launch a green mortgage; but it has said that by June it will launch a personal loan that will be linked to the Energy Performance Certificate.

Meanwhile, the Yorkshire building society announced last week that it will launch an 'energy efficiency loan' in April - an advance to existing mortgage customers for energy-efficient enhancements, such as loft insulation, to their properties. The interest rate is likely to be charged at somewhere between 6.15 per cent and 7.15 per cent and will be available for improvements from £500 to £15,000. It will be the first in a suite of energy-efficient products to be launched by the building society in the next few months.

The Co-operative Bank said it plans to extend its portfolio of green products. It said it would be launching a product attached to its green mortgage that 'will reward and encourage homeowners who actively reduce their CO2 emissions' before the end of the year.