What is a green home loan?

author-avatar By on July 08, 2021
What is a green home loan?

If you’re buying, building, renovating or refinancing an environmentally-friendly home, you could be eligible for a green home loan.

Green home loans reward borrowers for making homes more energy efficient and sustainable by offering discounted interest rates that encourage borrowers to be more environmentally responsible.

Which lenders offer green home loans?

A growing number of lenders in Australia are now offering green home loans. Below are all the lenders in Australia who offer green home loans at the time of writing.

  • Bank Australia: The customer owned bank offers a Clean Energy Home Loan in partnership with the Clean Energy Finance Corporation (CEFC). The Clean Energy Home Loan is available on the Premium Package Home Loan for new and existing customers (including refinancers).

  • Commonwealth Bank: Existing CommBank customers with an eligible home loan or investment home loan can use the CommBank Green Loan to buy and install renewable technology for their homes.

  • Firstmac: The non-bank lender offers a Green Basic Home Loan on homes that meet or exceed the seven-star energy rating under the Nationwide House Energy Rating Scheme (NatHERS). 

  • Regional Australia Bank: The Sustainable Home Loan is for owner occupiers who want to invest in environmentally friendly and sustainable features for their new home, or add them to their existing home.

  • Gateway Bank: The mutual bank’s Green Home Loan offers a discounted variable rate on properties with a (NatHERS) rating of 7 stars or higher.


What’s the criteria for a green home loan?

Each lender has its own eligibility criteria borrowers have to meet in order to be eligible for a green home loan. It’s best to check directly with your lender to find out what its eligibility criteria is.

Generally speaking, to be eligible for a green home loan your new or existing home must meet certain criteria that includes (but is not limited to):

  • Solar panels

  • Insulation

  • Double glazing

  • Solar hot water systems

  • Water tanks

  • Energy storage system

Your home generally also has to meet or exceed a seven star NatHERS rating to be eligible for a green home loan.


What is the NatHERS rating?

The Nationwide House Energy Rating Scheme (NatHERS) is a star rating system out of 10 which rates the energy efficiency of a home based on its design.

The rating system is judged on many factors such as the layout of the home, construction methods and materials used, and how much heating or cooling the occupants may need to use to live comfortably throughout the year.

When applying for a green home loan, many lenders will require a NatHERS Accredited Assessor to complete a Nationwide House Energy Rating Scheme Certificate which shows a NatHERS rating of 7 stars or higher

How is the NatHERS rating calculated?

To calculate a NatHERS rating, a NatHERS Accredited Assessor will use software that models expected indoor temperatures based on data specific to that property, including information on design and construction of the home, climate, and common patterns of household use.

The NatHERS Accredited Assessor then enters data into the software to develop a simulation model of the house or apartment, including:

  • size and function of rooms

  • size and specification of openings

  • building materials/windows/products

  • type of construction

  • dwelling orientation

  • location

The software then models how much heating or cooling the occupants may need to live comfortably during the year by simulating how the local climate heats and cools the house during the day and night.

As soon as the temperate inside falls outside of a ‘comfortable’ range, the software models the need for heating and cooling based on the assumption the occupants in the house will open or close windows and blinds/awnings before resorting to using heating or cooling.

The total estimated annual heating/cooling requirements are then converted to a star rating out of 10.

It’s important to note the NatHERS rating does not take into account things like household appliances, hot water systems or lights because these are usually replaced many times over the course of the building’s lifetime.


What documents are needed to apply for a home loan?

The documents required to apply for a green mortgage will differ depending on the lender, but typically required paperwork includes:

  • Proof of ID (passport, drivers license, birth certificate).

  • Details of the property (address, purchase price).

  • A statutory declaration confirming the home has the required environmental features and measures.

  • Proof of income (payslips, tax summary).

  • List of expenses, debts and other loans.

  • List of assets (vehicles, jewellery, property).


How to apply for a green home loan

As with the criteria for a green home loan, the application process will differ between lenders. However, typically the process will look similar to the following:

  1. Find a lender: There isn’t a large range of lenders offering green home loans, so finding a suitable one isn’t a mammoth task but it may limit your options. Calculate your borrowing power to get an idea of whether they will lend you the required sum, and check whether they have loan features you will require.

  2. Submit application and documents: The lender will have a specific application form and will require you to provide supporting documentation that you will need to submit.

  3. Wait for approval: Approval can take anywhere from a day to three weeks.

  4. Final approval: The lender will approve your loan and finalise your paperwork and loan payment to the necessary party.


What are the advantages and disadvantages of green home loans?

Pros

Cons

Interest rate discounts. Most green home loans offer lower interest rates than traditional home loans as an incentive for borrowers to build or buy homes that are more environmentally friendly.

Strict eligibility criteria. Unlike traditional home loans, green home loans have far stricter eligibility criteria that your home will have to meet in order to be eligible for the loan. Generally, your property will need to have at least a 7 star NatHERS rating and/or have sustainable features.

Higher LVR. Some green home loans also offer a higher loan-to-value-ratio (LVR) than traditional lenders - some lenders allow a 90% or even 95% LVR. This means you can go in with a deposit as low as 5 or 10%, but you will need to pay Lenders Mortgage Insurance (LMI).

Limited lenders. More lenders are beginning to offer green home loans but as it currently stands, the market in Australia is fairly small, which means you’ll have fewer lenders to choose from.

Reduce your environmental footprint. Besides interest rate discounts, the most obvious incentive of a green home loan is that you get to play a role in fighting climate change by reducing your footprint on the environment and living more sustainably.

Lower your energy bills. Making your home more energy efficient can also lower your power bills, so it’s a win-win situation!


Frequently asked questions

How much can I borrow with a green home loan?

How much you can borrow with a green home loan can come down to the lender and your personal circumstances. Lenders often have minimum and maximum loan amounts, but you’ll only be approved up to a certain amount based on a number of factors. These factors include your income, assets and liabilities, credit score, and current debts.

Do green home loans offer offset accounts or redraw facilities?

Many green home loans come with offset accounts and redraw facilities as they are essentially a discounted regular home loan. However, some lenders may not offer these features, or charge you for the privilege, so double check before applying.

Can you get pre-approval for a green home loan?

It is possible to get pre-approval for a green home loan, dependent on whether the lender offers this. You’ll need to prove the home meets the relevant green criteria, and provide the necessary paperwork. Keep in mind, pre-approval isn’t a guarantee, but gives you an idea of what the lender may let you borrow.

How much deposit do you need for a green home loan?

You’ll typically need at least a 5% deposit for a green home loan, however, some lenders require you to have a 20% deposit. If you have less than a 20% deposit, you’ll likely have to pay Lenders Mortgage Insurance.


Savings.com.au’s two cents

The market for green home loans may be fairly small in Australia at the moment, but with the looming threat of climate change, it’s likely the demand for green homes - and green home loans, will continue to rise.

If you’re trying to reduce your environmental footprint and want to lower your energy bills, green home loans are an incentive for borrowers because they generally offer more competitive interest rates than traditional home loans. As the market for green home loans in Australia grows, it’s likely the interest rates on these products will become even more competitive, with more lenders tapping into the green craze.


Photo by Vivint Solar on Unsplash

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Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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