Should buyers give Green Mortgages the green light, or are there better buys in older homes? Margaret Barrett of Mortgage Navigators shines a light on the pros and cons.
When house hunting, should you be swayed with the cheaper Green Mortgage interest rates to buy a new-build or a property with a good BER rating of B3 or above? Or is there a cost saving to be had in buying a previously owned property and renovating it?
The cheapest mortgage interest rate available from an Irish lender is 3.45%, which is a fixed rate for four years. This is for a property with a BER rating of B3 or above. Rates vary from 3.7% to 3.8%, for a BER of C and below.
Recently, an Irish lender adjusted its mortgage rate offering, with discounts on different energy ratings. The better the home’s energy rating, the higher the discount on their standard fixed rate.
So, what does the difference in BER make in real terms for borrowers? Take the example of a €250k loan on a B3 rated property, fixed at 3.45%, as against the cost of a €250k mortgage on an F Rated property, on a 30-year term.
The B3 home, at 3.45%, is a repayment of €1,026 per month, while the F-rated home is €1,084 a month, at the 3.85% interest rate. That means a monthly saving of €58, which, over the 4-year term, saves €2,784.
The largest proportion of buyers in the Irish market, first-time buyers, account for over 62% of the market. And deposit funding is the number one reason behind their choice of house.
Buying a new-build is often the only option for this cohort. With the high rents they pay, they cannot save enough money monthly to fund the elusive 10% deposit, and the costs associated with drawing down a loan. They are heavily reliant on the Help to Buy scheme or The First Home scheme, to bridge the gap.
Is there value to be had in a property with a lower energy rating? The answer is yes, if you can afford to renovate it.
Lenders also lend to fund works and, if these works increase the market value of a property, some lenders, on confirmation of completion and submission of a new improved BER cert, will set the mortgage interest rate on a BER discounted rate.
The purchase price of a low BER rated home is often lower too, especially a house needing modest renovations. It is also worth noting that there are SEAI grants available for increasing the energy rating of older properties.
While there is no maximum ceiling on SEAI grants, they are around €25k-€30k, and can be used in tandem with the vacant home scheme, if a property qualifies, worth up to €50,000 on top.
Buyers need a good engineer when assessing this type of property, however, as there are stories of the price quoted for work and the final cost being quite different!
The size of an older property is definitely going to be bigger, in terms of the house floorplan and the garden too. It might even have a garage, depending on when it was built. These houses are more adaptable to a growing family. There can be room to expand into the garden, the garage, or to the side of the home, if required.
Many previously owned homes, especially in urban areas, are more centrally located than new estates built today. This is obviously beneficial for established transport services, schools and other amenities, and can reduce the need for two family cars.
It would be great to see renovation grants increased, in line with the cost of works. The process of applying and drawing them down could be simpler too. There are some measures being taken at the moment to help, but there is certainly more to be done.
Is it also time that the Help to Buy scheme was expanded into all house purchase categories, both new and older properties. This would certainly help the cohort of young people who are locked out of the market.
Margaret Barrett (pictured) is managing director at Mortgage Navigators, a mortgage broker service that is part of financial services company, Contracting Plus.