While the green pound may have become a mighty force, consumers have been slow to get ethical in one particular area of financial planning – and that is your mortgages. Ethical home loans currently represent a tiny fraction of the UK housing market, sold only in their thousands. But what is it that makes the mortgage go unnoticed under the ethical-spenders nose? And is it this level of public-unaware that makes us question whether a mortgage can in fact be Green – it may be so.

They’re almost everywhere now, all you have to do is type in “Green Mortgages” into your search engine and hundreds of eco-option will pop up on your screen, proposing to make life easier for you and greener for your environment. The most difficult task – if it pops up in your own search engine – is to discern which ones are authentic and have grown from stringent Environment Policy and EMS schemes, and which are the ones that have been green-washed for the benefits of the market.

With green issues breaking the headlines, more and more homeowners are becoming increasingly aware of the environmental impact of their homes, and are switching their mortgages and improving their homes to make them much more eco-friendly. However, an ethical lender is not one who just plants a few trees.

Whilst only offered by a few mortgage lenders at present, lenders that offer green mortgages are certainly becoming much more popular, and its only a matter of time before they become commonplace.

Essentially, a green mortgage aims to reduce the negative impact our homes make on the environment, and they work in one of two ways: the lender will make a donation on your behalf to environmentally friendly schemes, which in affect offsets some of the impact your home may cause; or the lender will only lend on properties that will, or currently, benefit the environment.

The Energy Efficiency Partnership for Homes (EEPH) defined what it is to be a lender of a green mortgage:

A green mortgage offers a financial incentive that encourages the homeowner to buy or work towards a high energy performing home.

A green mortgage may also offer incentives for other positive environmental features of a new or existing home.

A green lender encourages customers to buy or work towards an energy performing home.

A green mortgage offers one or more financial incentives linked to the home’s energy use.

The Ethical Investors Group (EIG) classified mortgage lenders in terms of their ethical positioning:

• Category 1 Very few mortgage lenders will be filed in this category. They are very selective about the attributes of the property they will lend on, so the average home would not qualify. The most common properties that this type of loan is made on are derelict buildings and environmentally friendly new-build properties.
• Category 2 These will be institutions that operate an ethical policy, or apply some form of environmental criteria or standards to their loans. Their business may be run according to an ethical code of conduct, and they may even exclude customers that operate in an unethical way. And it will not be uncommon for a category two lender to offer special mortgage terms of discounts to borrowers that meet environmental standards on their properties.
• Category 3 Mutual lenders, such as building societies, who are owned by their customers and not their shareholders, are found here. Because mutuals do not lend to companies, your interest payments won’t be used to lend to companies that may act in unethical ways.
• Category 4 Includes banks that were once building societies but are now run and owned by shareholders, and as such are no longer mutual. If a lender implements a comprehensive ethical policy when dealing with companies it could climb to category two, if it chooses not to it will drop to five.
• Category 5 This category is formed of most high street banks, or ex-building societies that are now owned by banks. These organisations are ranked according to how much they contribute to both society and the environment.

So there we have it, the green mortgage, we may choose to understand, works in the same way as if we were calculating our carbon footprint – it is not what the product claims to be on face value, instead, a green mortgage is the ‘hidden’ policies it implements to benefit the environment, on a local, nation, and international scale.

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