If you’re considering taking out a green deal loan on a house you’re planning to sell in the future, your prospective buyers will not find it harder to secure a mortgage.
At least that’s the message the body which represents mortgage lenders is keen to get across.
The Council of Mortgage Lenders (CML), which represents 95 per cent of UK residential mortgage lenders, has published guidelines which state that “in principle”, the green deal should not affect mortgage affordability for customers.
Their guidance states that “in most cases, lenders assessing new mortgage applications will be able to treat green deal commitments as ‘basic essential expenditure’ under the Financial Services Authority’s (FSA) rules for assessing affordability”. In other words, it won’t be considered as a debt that presents a barrier to securing mortgage.
Furthermore, as the golden rule of the green deal states that repayments should not exceed expected savings on energy bills, in the majority of cases there should be no net cost.
But, as anyone considering a green deal loan needs to be aware, the golden rule is not guaranteed. If energy bills don’t rise as expected, or if interest rates on the green deal loans rise faster than expected, a net cost could indeed result. And since the debt stays with the house, that net cost will be passed on to your buyer, potentially creating both a barrier to their ability to secure a mortgage and a deterrent the saleability of your house.
I put in a call to the CML to ask whether lenders would prefer that homeowners considering taking out a loan for energy saving measures on their property, did so through their mortgages instead.
Whilst CML spokesman Bernard Clarke was at pains to point out that how to secure finance is a borrower’s decision, he did observe that if you financed your improvements through your mortgage you would not be passing on the debt when you sold your house.
“Since mortgage rates are very low it may be a cheaper way of borrowing,” he told me. “And when you come to sell you redeem that mortgage so a potential buyer doesn’t have to take into account your green deal commitments.”
Whilst we’re on the subject of selling up, it’s worth remembers that energy saving measures are likely to make a home more saleable as they’re likely to make your house warmer and in the long run,cheaper to run. But if you’re considering taking out finance to fund the improvements, do remember that the green deal is just one of your options. Make sure you shop around before you commit.
More information on the green deal from YouGen
From the blog
Is the Green Deal right for me? (25th Feb 2013)
How do I pay for energy efficiency improvements to my home? (4th April 2013)
Is the green deal a good deal? (24th January 2013)