Nationwide is earmarking £1billion to give customers cut-rate ‘green’ mortgages and loans for eco-home improvements.
Interest rates on the loans will start from as low as 1 per cent for the first two years.
It is the first big mortgage lender in Britain to offer cheaper deals for customers who go green.
But others are expected to follow suit because there is pressure from City regulators on banks and building societies to help customers make properties more energy efficient. Homeowners will be offered loans of up to £25,000 to upgrade their existing houses and flats.
Improvements that could qualify for the loans include insulation, solar panels, a new eco-friendly boiler, biomass heating, an electric car charging point and energy efficient windows. Homebuyers who opt for a new-build with a grade A energy performance certificate can apply for a special preferential rate ‘green’ mortgage.
EPCs measure the energy efficiency of homes on a scale of A to G. A is the top rated, with the lowest fuel bills and the least impact on the environment through carbon emissions. Most UK homes are in bands D to E.
Interest charges on the green mortgages and loans will typically be about half a percentage point cheaper than Nationwide’s usual charges.
A borrower who took out a £300,000 mortgage on an A-rated home worth £400,000 would save around £1,000 on a five-year fixed mortgage. Homeowners in a A-band property can save on average £500 a year in energy costs.
Someone borrowing £25,000 over ten years for solar panels costing £7,500, double glazing at £6,750, a biomass boiler for £2,000 and a ground source heat pump for £8,750 would save more than £350 in interest repayments in the first two years. They would also then save hundreds of pounds a year on their energy bills.
Energy used in homes accounts for up to 18 per cent of UK carbon emissions. Much of that is due to poor insulation and inefficient heating in older properties. If the country is to meet ambitious targets for cutting emissions, that has to come down.
Families could save large sums on their energy bills by improving their houses and flats but these can be costly. For example, a new eco-boiler costs £8,000 or more.
Joe Garner, chief executive of Nationwide, said the UK urgently needed to slash carbon emissions but it would come at a cost. He added: ‘Making green home improvements pays off in the long run but it can take quite a few years to get your money back in terms of lower bills.
‘That is a struggle if people don’t have a lot of spare cash. The economics of making your home more environmentally friendly have to improve.
‘We are hoping these green loans and mortgages at preferential rates will help make it possible for people to upgrade their homes or to buy new properties.’ Mr Garner said the green loans and mortgages would not generate high returns for Nationwide but it is able to offer them because they are low-risk.
The building society has 1.5million mortgage accounts on its books and expects to lend £24billion this year. It is calling on Boris Johnson and Chancellor Sajid Javid to reform council tax so greener homes pay less.
That would be politically sensitive as local authorities need council tax revenues to pay for social care and other expenditure. It could also unfairly penalise less well-off families who cannot afford to spend thousands of pounds on their homes, while reducing council tax for better off families who can.