Green Mortgages

Building societies support the development of green mortgages, loans and other products that help people to minimise the environmental impact of their home. However, any product of this type must be commercially viable in a fiercely competitive mortgage market.

The Government has encouraged lenders to offer green mortgages. With political parties of all colours anxious to reduce the impact of both new and existing housing on the environment, political pressure for lenders to offer green products will continue to grow. At the same time, rising energy prices will mean that consumers will also be looking to reduce the costs associated with running a home.

This has resulted in a number of building societies offering green mortgages. These typically offer the borrower a reduced interest rate for loans to fund environmental improvements to a property, or a reduction in interest rate for an environmentally friendly property. Other green mortgages involve the lender making contributions to environmental charities on a lender's behalf.

Offering such a product generates a number of challenges to a building society. Paramount amongst these are ensuring that they are able to provide products that both help the environment and that also are commercially viable and attractive to customers. This is especially so as customer demand clearly shows that consumers look at the overall cost of the product rather than its green credentials when choosing which one to buy.

As a consequence, although we expect the green mortgage niche to continue to develop, we expect that the majority of borrowers will continue to look for a cheap product rather than a green one. However, we also expect that customers will, in the future, look to borrow from organisations that can offer them a competitively priced mortgage and that also reflects their concerns over the environment corporately.

This represents a challenging agenda for many lenders, but it is something that many building societies are already responding to.

BSA published a policy special on how societies are tackling climate change in the Spring 2007 edition of Society Matters.