This is the conclusion of a report by the Intermediary Mortgage Lenders Association (IMLA) on the future of the green mortgage market in which views of consumers, intermediaries and lenders were all taken into account.

It found 74% of lenders expected green mortgages to become a larger part of the wider mortgage market in the future.

And as many as one in ten advisers have already noticed a rise in customer interest for the mortgages since the Covid-19 crisis.

Meanwhile one in five homeowners said they would be willing to pay an extra £100 a month for a mortgage if it helped to lower their carbon footprint.

Indeed, this enthusiasm was driven by the opportunity to save money on energy bills (53%), but 43% also wanted to take out these products to feel they were playing their part in saving the environment.

Kate Davies, executive director, of IMLA, said: “Green mortgages might be in their infancy, but the indications are there that this is a part of the mortgage market that is set to grow in the years ahead.

“Lenders and advisers are already recognising the opportunities presented by green mortgages as consumers ‘switch on’ to eco-friendly products and recognise the devastating potential of climate change.

“Now, with a Covid-19 lockdown giving us all a temporary view of a world with reduced carbon emissions, the growth of the green mortgage market could accelerate yet further.”

Indeed, there are already a number of lenders and advisers who have responded to this demand from consumers. Nearly a third (29%) of lenders planned to or have already launched a green mortgage product, while a similar percentage of intermediaries (35%) also intend to advise clients on green mortgages in the future.

Challenges

But the research also found there were several hurdles consumers might face which could restrict a potential green mortgage market.

Currently, for example, awareness about green options is low with 43% of borrowers admitting they had never heard of a green mortgage.

There were a number of misconceptions with a third (33%) of homeowners expecting green mortgages to cost more than a typical product.

Yet, more than three quarters (77%) of lenders have plans to launch green mortgages which are either cheaper or which cost the same as a ‘standard’ mortgage.

Government incentives

A report by the Committee for Climate Change suggested that there are around 29 million homes in the UK which require adaptations to make them low-carbon, low-energy properties. IMLA’s study found 27% of homeowners in the UK believed affordability was a problem, and were concerned at the significant costs of improving their property’s energy efficiency.

As such IMLA thinks government intervention is crucial if green mortgages are to thrive. Three quarters of advisers and lenders agreed the government must find financial incentives for consumers – similar to the Green Homes Grant – in order to support this market.

More than half (52%) of both groups also wanted to see more in the way of incentives for lenders to encourage more providers to offer green mortgages. Some even said they would welcome more radical intervention in the form of restrictions on the sale of inefficient homes.

Davies added: “Despite the potential for green mortgages to be an ever-present option for customers, the issues and barriers surrounding these products are much wider than the UK mortgage market.

“The government has already committed to making Britain a carbon-neutral nation by 2050. Upgrading the UK’s existing housing stock, to make homes across the country more energy efficient, will be critical to that goal.

“Green mortgages will have a role to play in this journey, incentivising consumers to make home renovations.

“Many lenders are already including green mortgages or eco-initiatives in their future plans, too. However, government initiatives like the Green Homes Grant clearly remain vital, as does a broader approach to tackling ethical and sustainable business practices with the creation of more energy efficient homes, jobs, public transport upgrades and sustainable city-planning projects.”