Green second charge mortgages expected to become ‘more widespread’ – analysis

  • 14/04/2022
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Green second charge mortgages expected to become ‘more widespread’ – analysis
Earlier this week, West One Loans launched its green second charge mortgage for landlords with properties with an Energy Performance Certificate (EPC) rating between A and C in what it said was an industry first.

Rates start from 5.29 per cent, which it said was its lowest ever rate for a buy-to-let second charge mortgage.

Marie Grundy, managing director for second charge mortgages at West One Loans, said: “Although we only launched our green mortgage product less than a week ago we are already experiencing strong demand with just under half of all buy-to-let second charge mortgage illustrations being issued on our new green product.

“We are delighted with the response to this initiative and will continue to work towards the delivery of more innovative product solutions to meet the growing demand for second charge mortgages.”

Brokers have said that they expect the number of green mortgage products to grow overall, which includes second charge mortgages.

Gerard Boon, managing partner at Boon Brokers, said that more green second charges were entering the market, citing West One’s offering, which incentivizes landlords to improve EPC ratings by offering lower interest rates than its standard ranges.

“If it will result in a lower interest rate, there will certainly be demand there for those products. With the emergence of these green second charge products, offering attractive interest rates, it’s a good idea for existing landlords with second charges to contact their broker to see if a switch is in their interest.” he said.

He added that he expected this type of market offering to become “more widespread in the second charge market in upcoming months and years”.

However, Boon warned that further advances are usually cheaper than second charges, so he expects those to be in higher demand, but this could change if existing lenders could not provide further advances.

He continued: “At this time, very few clients are aware of green mortgages – it is normally a product that we as the broker recommend if it is suitable. However, as consumers start to become more familiar with the product with the knowledge that they may be able to acquire a better interest rate, we are expecting clients to request it in the future,” he said.”

‘Green mortgage revolution in full swing’

Dominik Lipnick, director at Your Mortgage Decisions, said that without a doubt, green mortgages are here to stay and more lenders will offer them in the future.

He said: “It makes sense that the second charge market follows suit and offers green products as more energy efficient homes provide better security for the lender and encourage borrowers to insulate their homes.”

He added that the benefits of green products included lower rates, and the lender had better security as and the borrower would spend less on energy costs.

“The real downside, other than few products, is that many older homes simply do not qualify and with the cost of living crisis, fewer people have the spare funds to get their properties into the required A or B rating,” he said.

He added that consumer awareness of green mortgages was low as there had been “very little education or publicity around these products”, so “good, independent advice is key”.

Matthew Fleming-Duffy, director of Cherry Mortgage and Finance, said that the “green mortgage revolution was now in full swing” with more residential, buy-to-let, lifetime mortgage and second charge options becoming available.

He said: “Whilst this type of lending solution is still under the radar for most consumers, it’s only a matter of time before this forms part of the national psyche as the cost of living and energy prices escalate.”

Green second charge is very ‘niche’

Lewis Shaw, founder and consultant at Shaw Financial Services, said that efforts to decarbonise the environment were “positive”, but expressed concerns that green second charge mortgages were “so niche I can’t imagine anyone would be seeking them out”.

He said: “If lenders want to push a green agenda, they should start by divesting from the fossil fuel industry. If they really want to help then they should start ensuring that new-build developers install solar panels on every new home and adhere to the building standards they’re meant to, rather than building cardboard boxes that have more heat holes than a slice of edam.”

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