Aderelict church or a new timber chalet might sound attractive to an adventurous homeowner but mortgage lenders have traditionally steered away from unconventional properties.
However, as green issues increasingly play on people’s consciences, and wannabee -developers are inspired by programmes such as Grand Designs, the desire to restore defunct buildings or build eco-friendly properties is growing.
Only a handful of specialised lenders are marketing “green” mortgages. These can either be loans that offer environmentally-friendly perks such as free energy savings reports, carbon offsetting and cashback for energy-saving home improvements or those that fund large-scale renovations of disused buildings and energy-efficient new builds.
Brokers say that for big restoration projects, borrowers will often have their hands tied as to where they can get a mortgage.
One lender, Ecology, is happy to offer loans on properties that other lenders might consider “unmortgageable”. It funds the building of log cabins, timber chalets and properties constructed using traditional materials such as straw. It also offers loans to develop rundown houses or derelict buildings.
The company has provided mortgages on a wide range of properties from dilapidated cottages to disused lighthouses, chapels, oast houses, water towers and barns.
James Cotton at London and Country, says: “These are the kinds of properties that standard banks and building societies might not be too sure about.
“This lender is providing a service that may not be found elsewhere, which means borrowers will probably not get the most competitive interest rates on their mortgage.”
Cotton says the trouble with unusual properties is that it can be difficult for a lender to carry out surveys and valuations. Also, lenders may be unsure whether they could resell the property in the event of a repossession.
“If the borrower is planning a large renovation the lender has no way of knowing how successful it will be. The development of these properties is a very niche market and most lenders prefer to stay away,” says Cotton.
But a growing number of lenders are offering “green” mortgages for more conventional properties.
Norwich and Peterborough, for example, offers “green” loans on new and existing homes with higher than average standards of energy efficiency or existing homes that buyers plan to make more environmentally- friendly.
N&P’s green loans come with free energy rating surveys and perks such as cashback that can be used to improve the energy efficiency of the property.
The lender also plants 40 trees for each of these mortgages it sells.
Similarly, The Co-operative Bank has an ethical lending policy in which it will plant a tree for each year you have the mortgage.
More lenders are expected to introduce these sorts of green mortgages as they seek to capitalise on growing concerns over climate change. The government is also launching incentives for homeowners to improve the energy efficiency of their properties.
But brokers say borrowers need to be careful that they are not paying over the odds for a marketing gimmick.
Mark Chilton, chief executive of Purely Mortgages, a mortgage broker, says: “There is clearly a move towards using the ‘green’ label as a marketing device but borrowers need to be sure they are getting a tangible benefit.”
He thinks lenders should be doing more to encourage borrowers to improve the energy efficiency of their homes. “The problem is that lenders are not really rewarding borrowers very effectively or actively encouraging them to improve the energy efficiency of their homes,” he says.
He advises that if the property is reasonably conventional, it might be cheaper to take out a more competitively-priced standard loan with a high street lender and then donate to a carbon offsetting scheme yourself.
If your dream property is unconventional, then you may have to take a loan at a higher price from a lender such as Ecology.
Ecology has a range of mortgages, including buy-to-let and interest-only deals and for properties that have commercial elements or on woodland that the buyer wants to preserve.
Interest rates for residential mortgages start at 6.15 per cent. Buy-to-let deals start at 6.4 per cent. The group offers a discount rate to owner-occupiers who are borrowing money to increase the energy efficiency of their homes.
Borrowers can get 1 per cent off the standard variable rate on funds that are borrowed to install energy efficiency measures or renewable energy systems such as floor, wall and roof insulation and low water-use appliances.
Ecology offers an initial loan based on the value of the property – or the related planning permission – at the first stage of the development. As the building work progresses, the lender will reassess the property’s value and issue further funds accordingly.
Jon Lee, lending development officer at Ecology, says: “We are aimed at specialised funding for new sustainably- built homes and conversions that bring old buildings back into use with energy-efficient materials.”
He says the group’s customers are using sustainable or recycled materials such as timber, straw, cob, rammed earth, reclaimed brick or stone. Some are building properties underground and into the side of mounds, while others may incorporate good insulation, triple glazing and efficient boilers and renewable energy systems such as solar panels and rainwater harvesting systems.
“We want to encourage the reuse of existing resources through renovation and support new builds that help protect the environment,” the company says.
Lee says the group is seeing steady growth in the number of inquiries. This year it has written £7m-£8m of new business. “Sustainable design is going in one direction,” says Lee.
He adds that other lenders that have entered the green mortgage market are offering customers the “feel-good” factor but not actually encouraging sustainable design and construction.
“Carbon offsetting is a rather passive way of giving someone the green credentials. We empower people to actually do something for themselves,” he says.
