Buy-to-let green mortgages: What’s available to landlords?

Three in five landlords are now interested in a ‘green’ mortgage – but only four lenders are offering them, and only one on new purchases.  

A total of 62 per cent of landlords described themselves as ‘interested’ in the loans, which reward them for making their properties more energy efficient, according to research by mortgage broker Mortgages for Business.

In comparison, only 10 per of landlords who acquired their first BTL property in the noughties said they had been interested in green mortgages when they made the purchase. 

Going green: Landlords can access better mortgage deals if they carry out improvements such as fitting solar panels, upgrading windows or installing electric car charging points

This could be prompted by the fact that landlords would be required to bring their properties up to an Energy Performance Certificate rating of A-C by 2028 under new government proposals.  

Despite this increased interest, there are signs the market is lagging behind as only four lenders appear to offer such a product, according to This is Money’s research.  

Two new lenders launched green products last week, although one is a further advance product which can only be used for making improvements to a property – not for purchase or remortgage. 

Both are offering landlords a rate discount for going green.

The first is specialist buy-to-let lender Keystone, which will reduce its standard buy-to-let interest rate by 0.15 per cent for landlords with properties more than five years old that have an energy performance rating of A to C.

This means that two-year fixed rates for a single-occupancy property start at 3.04 per cent, and five-year fixed rates at 3.19 per cent.

For HMOs and multi-let properties, the rates start at 3.29 per cent and 3.44 per cent respectively. 

This is the only green deal on the market that is available for both purchase and remortgage.  

Change is coming: Landlords could be required to achieve an Energy Performance Certificate rating of C or above by 2028, if new Government proposals get the green light

Change is coming: Landlords could be required to achieve an Energy Performance Certificate rating of C or above by 2028, if new Government proposals get the green light

At the same time, The Mortgage Works, NatWest’s buy-to-let arm, launched a green further advance – an additional loan secured against a property which landlords can take out to fund sustainable improvements.

A rate of 1.49 per cent will be available for loans of between £2,500 and £15,000 up to a maximum of 75 per cent loan-to-value, with no product fees.

Landlords can opt for a two or five year fixed product, and The Mortgage Works says that its green further advance rates are up to 50 per cent lower than standard further advances.

The whole loan must be used to fund sustainable home improvements. 

This could include installing solar panels, window upgrades or replacements, boiler upgrades, installing air source heat pumps or putting in electric car charging points.

Even with these two new deals, there are still limited financing options in the market for landlords wishing to go green – especially as the Government’s Green Homes Grant was axed earlier this year. 

The lenders who do offer such products are as follows: 

Green buy-to-let mortgages currently on the market 
Lender  Details Requirements 
Keystone green product range  Purchase and remortgage. Rates start at 3.04 per cent for a two-year fixed rate on a standard buy-to-let property, and 3.19 per cent for five-year fixed rates. For HMOs the rates start at 3.29 per cent and 3.44 per cent. Maximum loan size of £1million. For properties 5 years and older with an EPC rating of A-C 
Foundation Home Loans Green Reward Remortgage  Remortgage only. Foundation will offer a reduced 0.75 per cent product fee and £750 cashback on their standard buy-to-let rate of 3.75 per cent. Available on five-year fixes only. Higher minimum deposit requirement of 25 per cent. Property must have been given EPC rating A-C within last year 
The Mortgage Works Green Further Advance mortgage Further advance. Rate of 1.49 per cent on a two or five-year fix, for loans between £2,500 and £15,000. Available up to a maximum of 75 per cent loan-to-value. No fees.  Must be used to fund sustainable home improvements 
Paragon green range  Paragon is offering mortgages with 20 per cent deposits, less than the standard 25 per cent minimum, for up to 75 per cent loan to value. The five-year fixed rate is 3.99 per cent for a self-contained property – higher than the standard product – and 4.19 per cent for an HMO. However, the green products have no application fee, no product fee and include a free valuation and £350 cashback. Portfolio landlords whose properties have an A-C EPC rating, and have been awarded a Green Homes Grant

As well as its purchase and remortgage products, Paragon also launched a Green Further Advance product in February, which is designed to help landlords carry out upgrades to properties with EPC ratings of D or lower.

However, landlords must have been accepted for a Government Green Homes Grant in order to apply.  

What should landlords look for in a green mortgage?

Jeni Browne, director of Mortgages for Business, says that the best products offer a rate discount, rather than perks such as lower fees or cashback. 

‘A green mortgage means that, once they can confirm they have a revised energy rating for their property, the right lender will recalculate their mortgage rate at a discount,’ she says. 

She also says that landlords should ensure the discount is applied for the life of the mortgage, not just for the fixed period. 

‘There are various mortgage products out there but the best are applied on completion of an energy efficiency project and applied for the lifetime of a mortgage,’ she adds.  

Current legislation in England and Wales requires buy-to-let properties to have at an EPC rating rating of E or above. 

However, the department for Business, Energy and Industrial Strategy is consulting on plans to increase the EPC requirement to a C rating for all new tenancies by 2025 and for all existing tenancies by 2028.

Estimates suggest 3.2 million private rented properties are not at the Government’s desired EPC C rating, and to get them there could cost anything up to £10,000 per property. 

This, combined with the scrapping of the Government’s Green Homes Grant, means lenders have an opportunity to fill the funding gap for energy efficiency improvements via further advance deals.

Angus Stewart, chief executive of online buy-to-let broker, Property Master, thinks that the Government could try to influence lenders in this regard. 

‘We may well see the Government looking to nudge lenders to do even more,’ he says. 

‘A recent policy paper talked about expecting lenders to publish data about their green lending, and the possible setting of targets which would spur action. 

‘What needs filling is the “green gap” that has been left by the scrapping of the Green Homes Grant scheme. 

As it stands individual landlords face having to find anything up to around £10,000 per property if they are not meeting the new required standard.

And there is evidence that lenders are starting to come around to the idea.  

 ‘As one of the UK’s largest buy-to-let providers, it’s important that we support our landlords in making their properties more sustainable and energy efficient,’ says Daniel Clinton, head of The Mortgage Works. 

Eco-friendly: More green mortgage options could encourage landlords to make improvements

Eco-friendly: More green mortgage options could encourage landlords to make improvements

‘Buildings are the second largest source of emissions in the UK and even small changes, such as adding insulation to pipes can make a big difference in helping improve the green credentials of properties. 

‘Landlords are required to ensure their properties have at least an EPC E rating, but in future this could be increased to a C rating meaning many will need to make improvements.

‘By launching our Green Further Advance with rates significantly lower than our standard range, we hope this will give landlords the push they need to start making those changes.’  

So could more lenders enter the market – both for further advances and for purchase and remortgage? 

There are 12 lenders offering green mortgages to owner occupiers, and Stewart thinks that this trend could be reflected in the landlord market.  

‘We do expect this to increase as lenders identify the market opportunity, and see that it is also the right thing to do to play their part in helping landlords improve energy efficiency,’ he says. 

‘The Government has made plain its desire to get the entire private rented sector up to an EPC of at least a C by 2025 in terms of new tenancies and all tenancies by 2028. 

‘At present around 67 per cent of private rented properties in England and Wales – around 3.2 million in total – are a band D or below so this is going to be quite a challenge.’ 

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Should we use a pricey agent to manage our buy-to-let, or do it ourselves?

My partner and I are finally buying a new home with more space and a garden, having struggled in our one-bedroom flat during lockdown.

We are in the fortunate position of being able to buy without having to sell and we have therefore decided to keep our flat as an investment and rent it out.

We are considering using a letting agent to find a tenant, but are undecided over whether we want to outsource the day-to-day management as well.

We spoke to a local letting agent, but they charge 20 per cent of the monthly rental income in fees for their full management service, which seems like a lot.

A friend of ours has suggested we would be mad to use an expensive high street agent, and recommended we use a cheaper online service to rent it out and manage the property ourselves.

We like the idea of a fully-managed service removing all the stress, but want to know if there are other advantages and whether 20 per cent is too much. 

And if we opt to manage it ourselves, what options are out there and what else do we need to consider? Via email

When a landlord opts for a fully-managed lettings service, the agent steps in and handles everything from referencing a tenant to arranging for repairs to the property

Ed Magnus of This is Money replies: Becoming a buy-to-let landlords can be a time-consuming and demanding investment.

On top of finding suitable tenants, you have to consider other factors such as regulations and safety checks, maintenance costs, void periods and rent collection to name just a few.

Using a letting agent enables landlords to take a step back and allow someone else to manage everything on their behalf.

But it can come at a considerable cost, on top of what they are already paying in tax and maintenance. 

Traditional high-street letting agents can charge anywhere between 5 and 25 per cent of the monthly rental income depending on the company, the location and the service level on offer. 

Broadly, there are two service levels available. As the name suggests, the cheaper ‘let only’ service is where the agent finds the tenants, moves them in and then hands everything back to the landlord.

You should typically expect to pay between 5 and 8 per cent of the monthly rent for this service, according to the property forum, Property Hub.

The ‘fully managed’ service is where the agent takes care of everything during and letting process and the tenancy, including rent collection and organising repairs. This should typically cost between 8 and 15 per cent of the rent, according to Property Hub.

If you just want help with the lettings and moving in process, there are online options which are far less expensive. 

Online agents such as Open Rent, Mashroom, Howsy, and Upad all offer cheaper DIY alternatives to using the more traditional high-street agent.

Open Rent for example, offers landlords the chance to pay just £29 for three months of advertising on Rightmove and Zoopla, giving users the ability to handle viewings and enquiries themselves.

With some of these services, landlords can then pick and choose their level of involvement with pick-and-mix extras such as viewings packages and photography services. 

For example, Mashroom offers the choice of professional photography and floorplans for an additional £100 fee, and Open Rent includes tenancy referencing from £20 and contract drafting, deposit registration and initial rent collection for £49.

This is Money spoke to Zaza Oswald, head of Winchester lettings at high street estate agent Carter Jonas; Calum Brannan, chief executive of online letting agent Howsy; and James Wood, senior policy officer for the National Residential Landlords Association, for their advice on the matter. 

What are the advantages of using a traditional letting agent?

Wood replies: The main advantage should be having the peace of mind that a property is managed by an experienced professional who can ensure they meet their legal responsibilities.

This is not always the case though. It is important to check that the agent is up to date with the latest legislation, and has good reviews from other landlords and tenants.

Agents can be costly, but if the landlord does not have the time to manage the property themselves they are usually worth it. 

Landlord life: Managing your rental properties yourself can be hugely time-consuming

Landlord life: Managing your rental properties yourself can be hugely time-consuming

Oswald replies: A good letting agent will provide golden nuggets of insight, helping landlords to target the right demographic for a property and price rents correctly. 

They’ll also often have a list of prospective tenants on their books, so they are in a great position to get the ball rolling even before the paint is dry and marketing photos available.

Managing a property can also be surprisingly labour-intensive, so it is also a question of time and expertise for the landlord.

Howsy’s checklist for DIY landlords

· Furniture and furnishings – Is the property you’re letting furnished? If so all furnishings must comply with Fire Safety regulations.

· Do you have the appropriate Smoke and Carbon Monoxide Alarms installed?

· Do you have manuals for any gas, electrical or other appliances in the property?

· Has your property been assessed for legionnaires?

· Do blinds in the property abide by the Blind Cord Safety Regulations?

· Do you have appropriate insurance in place?

Statistically, tenants tend to stay longer in professionally-managed properties – and it’s often something that corporate tenants insist on.

What should a DIY landlord consider before going it alone?

Wood replies: If the landlord does not live in the area where their property is located, they should probably consider an agent. 

If they decide to manage the property themselves, they will need to be up to date on the latest legislation and will need the various tenancy agreements and documents. 

Documents such as energy performance, gas safety and electrical safety certificates are all legal requirements and landlords need these in place before the tenancy begins.

If they are taking a deposit, this must be protected in a Government-approved scheme within 30 days of receiving the deposit. 

Brannan replies: You need to assess the market and consider recent market trends to make sure you value the property correctly. 

Landlords should conduct an inventory report before the tenant moves in, to assess the property’s condition and assist them with any claim that they may want to pursue against the renter in the event of any damage. 

The landlord also needs to decide how they will manage viewings, contracts, background checks and references on renters to ensure they’re suitable.

You may prefer to have the ability to choose who you rent to, rather than relying on an agent

You may prefer to have the ability to choose who you rent to, rather than relying on an agent

You will also want a team of trusted tradespeople on hand to help you when there is a leaky pipe or a boiler on the brink.

You also need to think about how you will manage utilities. This is especially important during void periods, and can lead to lots of admin work if not managed effectively. 

Finally, don’t forget to think about how you will be managing access to the property – as well as providing a set of keys to renters, you may need to retain a set for yourself to manage access for tradespeople or other circumstances. 

Verdict? 

Ed Magnus of This is Money replies: If you opt to use a letting agent, it’s important to do your due diligence before signing up with one.

Word of mouth and online reviews will give you some peace of mind, but don’t be afraid to pick up the phone and test how responsive they are to tenancy enquires.

If your heart is set on a fully-managed service, it would be wise to speak to at least a couple more letting agents to compare prices – you may find one that will charge much less.

You could also use the fees offered by other letting agents as a bargaining chip in haggling another agent down in price.

However, if you’re comfortable with the demands on your time, the regulations and the hands-on involvement of being a DIY landlord, you could find that you save yourself hundreds if not thousands of pounds each year by using an online letting agent.

Other than just savings, there are also arguably some advantages of being a DIY landlord. 

Whilst letting agents often claim to handpick tenants on your behalf and will boast of responding rapidly to property maintenance issues, you are essentially forfeiting your ability to guarantee this.

Were your property to have an issue, such a leaking pipe, you may prefer to be in a position where you can respond rapidly to safeguard your investment, rather than relying on a third party. 

Furthermore, as a DIY landlord conducting viewings, you will likely meet any prospective tenants prior to a tenancy commencing, meaning you have a better understanding of who will be living in your property.  

Ultimately it will come down to how much you value your time, and your willingness to actively manage your investment. 

If you’re short on time and would prefer a more laid-back landlord experience, it may suit you to opt for a fully managed service.

Property Hub’s 5 steps for choosing a letting agent

1. Look on Rightmove to see which agencies seem to be marketing the most properties similar to yours in the immediate area. Look at the quality of their marketing, and tick the ‘include let agreed’ box to see who’s successfully letting properties.

2. Once you have narrowed your search to a handful of agents, check their website to make sure they’re a member of a redress scheme like The Property Ombudsman, and that they list their fees transparently. Both of these are legal requirements, so if they’re not following them, it’s not a good sign.

3. Check whether they’re a member of a trade body such as ARLA Propertymark or NALS. It’s not mandatory, but it’s reassuring because it means they’ve committed to abide by that organisation’s code of practice.

4. Call those you like and see how you’re treated on the phone. Have a chat and see how knowledgeable they seem about the local market.

5. Have a more in-depth interview with your favourites: either at your property, at their office or on the phone.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.