Mortgage borrowers are being offered up to £15,000 cashback to go green.
Virgin Money has launched a new product called The Retrofit Boost, which is designed to help homeowners improve their property’s energy efficiency by giving borrowers cashback to spend on improvements.
Energy efficiency has become a key marketing tool when trying to sell a property, especially with high gas and electricity bills.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
As well as lowering bills, a more energy efficient home can also boost house prices.
But with Office for National Statistics (ONS) data showing the average home’s energy performance certificate (EPC) rating is D, there is plenty of improvement to get towards the gold standard of A.
The cost of improvements is one of the main barriers, with recent analysis by the Mortgage Advice Bureau showing a fifth of homeowners want to make improvements but half are worried about the expense.
Virgin Money is aiming to address this with a new product range in partnership with Hive that will help fund changes when taking out a home loan for a purchase or remortgage.
“At Virgin Money, we recognise the increasing desire among customers to create more efficient living spaces,” says Craig Calder, head of secured lending for Virgin Money.
“However, traditional financing options for home efficiency upgrades can be restrictive. The Retrofit Boost Mortgage is designed to dismantle these barriers.
“By providing cashback specifically for efficiency improvements, this mortgage product removes a significant financial obstacle.
However, you have to take out a 10-year fix to get the maximum cashback.
We explain how the Virgin Money Retrofit Boost Mortgage works and if it is worth it.
How Virgin Money's Retrofit Boost mortgage works
The Retrofit Boost Mortgage aims to fill the funding gap when it comes to energy improvements.
Virgin Money has partnered with smart home company Hive to design this product.
The idea is that borrowers on these mortgages can access energy saving tips and guidance on available grants from Hive as well as using the cashback to purchase its energy efficiency and smart home packages.
Customers are also free to spend the money with other suppliers to make the eligible improvements, which can include changes such as loft insulation or installing a heat pump.
Borrowers can only access this product through intermediaries, so you first need to check if your mortgage adviser works with Virgin Money.
It can be used for both residential and buy-to-let purchase and remortgages.
That may be of particular interest to landlords as rental homes must have a minimum EPC rating of E.
There are four fixed rate product options and the longer you borrow for, the more cashback you will earn.
This includes a five year fixed rate at 4.99% for 75% loan-to-value (LTV) with £3,000 cashback. There is also an 85% LTV option for five years at 5.04% that also pays £3,000.
The cashback rises if you borrow for longer.
Borrowers can get £10,000 cashback on a seven-year fix at 5.74% for 85% LTV but you will need to borrow for 10 years to get the maximum £15,000. The 10-year fix is available at 85% LTV and has a rate of 5.84%.
The minimum loan size is £150,000 and the product will be available for loans up to £500,000.
All the products have a £995 fee, plus there may be broker fees to pay.
How Virgin Money's Retrofit Boost mortgage compares
There are other green mortgages on the market, but many focus on a home that has already been made energy efficient.
This product could be of benefit if you need help funding the changes, but you first need to check if the improvements are possible.
Mortgage brokers have welcomed innovation to get homeowners to go green.
Justin Moy, managing director at EHF Mortgages, says: “For those who may have considered borrowing extra on their mortgage to pay for upgrades to their property, this is an indirect way of achieving that same outcome.
“Green mortgage product innovation is definitely needed within the industry and Virgin should be applauded for this move.”
But Moy and other brokers have warned borrowers to be wary of the rates and loan terms.
Moneyfacts data shows the average five-year fixed rate mortgage is currently at 5.5%.
That makes Virgin Money’s five-year deals competitive, however, Simon Bridgland, director at Release Freedom, warns the rates are “eye-watering” if you want to get the maximum £15,000 cashback on a 10-year fix.
“Achieving the top rate of green label cashback means tying in for a whopping 10 years at some eye-watering rates,” says Simon Bridgland, director at Release Freedom.
“Given that leading rates currently available for both borrower types are much lower, why would you choose to shoot yourself in the foot like this?”
In comparison, borrowing £15,000 through an unsecured loan for five years would cost a little over £18,600 at 9%.
“The increased rate with Virgin when compared with a market leading rate would be roughly £80 per month more if you were to borrow say £120,000 over 20 years,” adds Bridgland.
“Tied in for 10 years this is roughly £9,600 more just over the 10 years, so not as good a cashback as it first seems.”
How does the Lifetime ISA work? Key LISA rules
AJ Bell: a fine British fintech going cheap
