Green mortagages, a sustainable and advantageouss choice
In an era where the urgency to lower carbon emissions and improve energy efficiency is more pressing than ever, green mortgages are capturing increasing attention. These financial instruments create a win-win situation by promoting both economic and environmental benefits.
Sustainability is now a critical global priority, not only to protect our natural environment but also to secure the economic and social well-being of generations to come. One noteworthy solution encouraging responsible action is the advent of green mortgages. These financial tools enable banks to acknowledge and reward environmentally conscious choices made by homebuyers, offering a range of financial incentives and perks.
With green mortgages, the focus shifts to the building's energy efficiency as a key factor in the credit evaluation system, offering more favorable terms and making it easier to qualify for financing in the first place. In contrast, less energy-efficient properties will likely face more limited financing opportunities. The overarching goal of this approach is to promote more environmentally responsible choices, ultimately reducing the environmental footprint of the real estate sector.
What are green mortgages?
Green mortgages are special types of financing designed to purchase or build of energy-efficient homes, specifically those that meet Class A or B energy ratings. These mortgages are also available for projects aimed at enhancing a building's energy efficiency by a minimum of 30%. Much like their traditional counterparts, green mortgages are available with both fixed and variable interest rates.
The European Parliament introduced them in 2018 as part of the Energy Efficient Mortgages Pilot Scheme, an initiative that involved the main credit institutions across the continent with the goal of encouraging the provision of mortgages that could support the transition toward a more sustainable future. Five years later, the demand for green mortgages is on the rise - in 2022, they accounted for nearly 10% of all mortgages issued. This surge has been also fueled by the recent European directive on green homes, stating that residential properties must achieve at least an energy certification of Class E by 2030, and then advance to Class D by 2033.
Advantages of green mortgages
Green mortgages offer a range of benefits that can vary depending on the specific bank, but, in general, they typically include the opportunity to secure lower interest rates compared to traditional mortgages, as well as the potential for a higher loan amount, which can even cover up to 100% of the property’s value. In a market characterized by uncertainty, where many wonder which mortgage to choose, these green financing solutions stand out as a favorable choice worthy of consideration.
Banks are actively promoting green mortgages by offering further attractive incentives such as free application fees, mandatory insurance coverage paid for by the bank, zero interest on the first-year installments, extended loan duration, and more. This strategic push is driven by the fact that banks view these mortgages as less risky. The lower monthly installments and lighter bills associated with green homes make it less likely for borrowers to encounter payment difficulties Moreover, these mortgages finance eco-friendly properties whose market value is expected to appreciate in the long term. This way, banks not only encourage a shift towards a greener economy but also focus on more stable and lower-risk financial operations.
How to obtain a green mortgages
The steps to obtain a green mortgage are no different from those for a traditional mortgage. Each bank may have its own specific evaluation criteria, but in general they all require standard documents like identification, tax records, and income documentation. On top of this, it's essential to provide the Energy Performance Certificate (APE) for the property you're seeking financing for.
If you're applying for a mortgage to fund a renovation project, there's an additional step to the process. You'll need to provide details of the planned renovations along with a cost estimate. However, in this case, the interest rate discount will likely be granted only upon completion of the work, demonstrating a genuine improvement of at least 30% in the property's energy efficiency class.
Are green mortgages a good choice?
If the property is eligible for such financing, choosing a green mortgage is definitely advantageous. If the property is eligible for such financing, choosing a green mortgage is definitely advantageous. Beyond the immediate benefits tied to the mortgage itself, it's crucial to highlight the long-term perks of owning a home with high energy efficiency - namely, lower operational costs Moreover, its value is expected to increase over time, making it possible to sell it at a higher price.
There are also tax incentives that make the operation even more advantageous For example, the Green Home Scheme offers a 50% reduction in VAT for the purchase of properties in energy class A or B directly from construction companies until December 31, 2023.