Making Cents: Green Mortgage = lower repayments

BACK in December 2019, AIB and Bank of Ireland launched their green mortgage products, and these are mortgages which offer lower interest rates, if a properties energy rating is B3 or better.

The rationale behind the product is to encourage people to become more energy efficient by rewarding them with a lower interest rate.

And a BER (Building Energy Rating) rating is an indication of what the energy performance of your home is. The calculation is based on the energy used to heat your home, water, ventilation and lighting, levels of carbon dioxide emissions from your home, the number of people living in the property etc.

The rating goes from A to G, with A1 being the best rating you can get, and G rated houses having the worst energy efficient rating.

And according to a study carried out by Savilles, they discovered that about 60% of homeowners don’t know what the BER rating of their property is, and as a consequence a huge number of people could be missing out on lower mortgage payments.
Let me explain why.

Bank of Ireland for example are offering a discount of 0.30% off any of their fixed rate options ranging from one to 10 years, provided a property has a BER rating of B3 or better.

This discount applies to (a) owner occupiers who are buying or building a property to live in themselves (b) investors (c) switchers i.e. people who are moving their mortgage to BOI and (d) if you are topping up an existing mortgage held with BOI, although it’s only the top up amount that will benefit from the reduced rate and not the existing mortgage.

In all instances in order to avail of this lower rate, the mortgage has to be drawn down by December 31, 2023.
So, what does this discount mean in Euros and cents.

BOI’s current standard three and five year fixed rate with a loan to value of <60% is 4.75%, which means you can turn that into 4.45%.

If you borrowed, for example, €350,000 over a 25 year term, rather than paying €1,995 per month, you’d pay €1,935, which is a monthly saving of €60. And over five years, that saving amounts to €3,600.

In relation to AIB and their green mortgage offering, there are two particularly good features to it and they are (a) it applies to existing mortgage holders of theirs and (b) the difference between their normal fixed rate and their green rate is a much higher discount than BOI’s 0.30% but the offering is only available to their five year fixed term.

So, if you’re an existing mortgage holder of AIB’s and you have a minimum of five years left on your mortgage, you qualify for a green rate again provided that your property has a BER rating of B3 or better.

If you have and you want to switch to a green rate, the process is fairly simple i.e. you need to complete and sign AIB’s mortgage amendment form (available on-line) and send it back to them with a copy of your BER certificate, and that’s it.
And the difference to what their normal five year fixed rate is and what their five year fixed green rate is significant.

For example, their current rate for a loan to value of 50% or less is 4.65% but their equivalent green rate is 3.65%, a full 1% lower.

And again if we take an example of a €350,000 mortgage over 25 years, their standard five year fixed rate with a loan to value of 50% or less would mean monthly repayments of €1,975 whereas the green rate of 3.65% would mean monthly repayments of €1,780.

That’s a difference of €195 per month and €11,700 over the five year term, assuming that differential stayed the same.

PTSB also offers a green rate but like AIB it’s offering is only for a five year fixed term. And they are offering rates from 3.95% but that’s assuming your loan to value is equal to or less than 60% and you owe >€250,000.

EBS has a four year fixed green rate as well which is currently 3.75% and it’s available for mortgages with loan to values up to 90%.

And there are mortgage holders whose current fixed rates are coming to an end and are facing the prospect of much higher fixed rates but one way of perhaps mitigating those increases is to choose a green mortgage, if you qualify for one that is.

There are some people who will be offered rates by their lender that will be close to 6% if they want to fix for a further five year term, and they could be coming off a rate that was previously mid to late 2% or early 3% and now their rate could be doubled.

And one option for them to counteract this increase could be found in moving their mortgage to a lender offering a green rate.
And important to point out that the monthly difference between a five year fixed rate at 6% and one at 3.65% on a mortgage of €350,000 over 25 years is €475.

But again the caveat with all of these rates is having a property that has a BER rating of B3 or better.

And as we can see, because the monetary difference could be so large, isn’t it worth at least finding out what your properties BER rating is?

As I said already, six out of 10 people don’t know what theirs is and they could be losing out on significant savings which is why if you’re one of those who doesn’t know, I’d say find out.

And there’s an excellent website from the Sustainable Energy Authority of Ireland (www.seai.ie) that’s worth having a look at. I have and it’s a terrific resource which will guide you towards how you get a BER assessment, the contact details of those who are qualified and authorised to carry out that assessment, what the BER rating of your property currently is, what grants are available for those who wish to carry out changes to their property are and how they will improve their homes energy efficiency.

And I’ve seen a report carried out for a client of mine recently and it’s excellent, because it shows what their current rating is and what it could become if changes are made to the property.

And it highlights the areas which are poor or very poor which need work and what the impact of making those improvements are and what the potential cost of carrying them out will be and what grants are available in each instance. It also shows what areas are good and don’t need your attention or focus so you go to the cost of upgrading them, so the report is really focused.
And if you’re going to get an assessment carried out on your property, expect a cost of somewhere between €150 and €300. The type and size of your property influences the cost. And the SEAI also provide a grant of €50 which can be used towards this cost.

But this could be money really well spent not just with help to reduce your energy bills but maybe with your mortgage repayments as well.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie