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The Evolution Of Green Mortgages

May 1, 2008
Several UK lenders have begun to bring green mortgages to the market following Gordon Brown's latest budget announcements. The term "green mortgages" refers to loans for properties that are considered to be environmentally ethical or that meet certain carbon output criteria. Different lenders have different criteria regarding what constitutes a green mortgage and what benefits they will offer the environment.

In a basic sense, green mortgages are designed to offer some sort of benefit to the environment. This could involve lenders planting a certain number of trees per home loan approved, lending only on environmentally sustainable homes, or refusing to lend to heavy polluters.

Several building societies already offer a green mortgage for new homes that have a Standard Assessment Procedure (SAP) of 100 or higher. They also issue green loans for existing properties provided the funds are used to increase energy efficiency. Several mainstream banks have also declared their willingness to enter the market following the Chancellor's budget speech in March 2007.

These lenders are expected to introduce first and second mortgages for purchasing energy efficient new-build homes and for upgrading existing properties to become more environmentally friendly. The introduction of green mortgages and loans falls within the spirit of the Government's announcement that it will exempt all carbon-free homes from stamp duty from October 2007 until sometime in 2012. Homes costing up to 500,000 will receive the full exemption while homes costing more will receive a 15,000 reduction in stamp duty.

While the green mortgage market is still in its infancy it is expected to gain more interest from both the public and lenders over the coming years. Environmentally contentious citizens all around the world are constantly looking for ways to contribute to helping the environment on an individual basis. While it can be difficult to see how a mortgage could contribute to the health of the planet it is clear that UK lenders are beginning to offer whatever help they can to the cause.

If lenders can continue to help green mortgages evolve into products that make a measurable positive impact on the environment then they could become quite popular with UK home owners. This could particularly be the case if new homes are built with more sustainable material and are more energy efficient - also contributing positively to the state of the planet.

The Government has also expressed a clear interest in reducing carbon output from UK homes through the measures outlined in the 2007 budget. It would be beneficial to the development of green mortgages if they UK Government tied in its environmental policies with the potential benefits of green home loan products. This could include only allowing green mortgages to be secured against properties that have a certain level of energy efficiency.

At the moment there are only five lenders in the UK who offer green mortgage products. However as environmental concerns creep more and more into mainstream society green mortgages could one day become so popular that all lenders will offer such products to UK home owners.
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