Why it pays to go green for lower costs when buying a new home

Interest rates are on the rise again. Earlier this month, the European Central Bank (ECB) announced a rate hike of 0.25 per cent, on the back of rising inflation and energy prices. It’s the second such increase in the space of just three months.For those buying a home, this suggests that mortgage rates, which have been falling – figures from the Central Bank for July show the average interest rate on new mortgages was 3.48 per cent, down by one basis point on June – are likely to start to move upwards once more. Irish mortgage borrowers may not feel the full impact. As Trevor Grant, chairman of Irish Mortgage Advisors points out: “Competition, and not the ECB, is the main influence on home loan rates in Ireland.”Nonetheless, Irish mortgage rates will likely now trend upwards.READ MOREAnd the higher the rate, the more expensive your home is going to be. Remember, the purchase price you pay for your home is only one part of the total cost – financing costs can end up doubling how much you end up paying in total over the life of the home loan. That home you bought for €400,000? It could cost you closer to €620,000, when you factor in mortgage costs over the life of a loan.So then, it pays to ensure you’re paying the lowest rate possible on your loan when buying a home.The green rates Luckily for new-home buyers, who will be buying a home with a very high energy rating, many Irish lenders offer preferential mortgage rates.“Green mortgages have become a focus for the pillar banks in Ireland,” says Martina Hennessy, chief executive of doddl.ie, adding that the lowest rate on the market now starts from 3 per cent.Remember, a new simplified regime for Ber ratings was introduced in May of this year, to bring it into line with the EU. It means that ratings are now on a A0-G scale. A0 will be given to zero-emission homes, with a very high energy performance that do not use fossil fuels. Everything else is now rated A-G, with no sub-categories (for example B1, C2 etc). But you can still expect to see some of the old ratings on houses as developers transition to the new regime. [ Quarter of mortgage holders wrongly think they must buy home insurance from their lenderOpens in new window ]Typically, the rates apply where the building energy rating of a home is A or B, although as Hennessy points out, AIB holds its strongest rate for A-rated homes only.Bank of Ireland takes a slightly different approach. Under its EcoSaver mortgage offering, tiered discounts apply on ratings from A to exempt. So, for example, an A-rated home qualifies for an interest rate of 3.3 per cent, dropping to 3.45 per cent for a D rating, and 3.65 per cent for an exempt home.In addition, you can look for a further discount with lenders such as PTSB and AIB, as they also tier their fixed rates by loan to value (LTV) – the size of your mortgage as a percentage of the value of your home. The lower the LTV, typically the lower the interest rate, so if you have a 20 per cent deposit then you can lock into lower green rates. “With the addition of the help to buy and parental gifts, we are increasingly seeing mortgage applicants with 20 per cent deposits, which can reduce their rate by approximately 0.15 per cent,” says Hennessy.If you go green, then you will be opting for a fixed rate – there are no green variable rates on the market. This limits how much you can overpay – if you are in a lucky position to be able to do so – although many lenders still allow you to overpay a certain amount.[ First-time homebuyers can get some two-bed apartments with mortgage of €1,100 a monthOpens in new window ]And some lenders also allow you to claim money back on a green rate through a cashback product.“Cashback remains a popular option with first-time buyers and some green rates include cashback of up to 2 per cent at draw down. Taking the average mortgage amount [€358,000] this would be €7,160 lodged to your current account within 40 days of draw down,” says Hennessy.But how much might you save with a green rate?Consider our example in the panel. You can borrow at a rate of 3.1 per cent, fixed for four years, if your home is A-rated, such as at the Mariner’s Point development in Wicklow town. This means a home priced at €495,000, with a deposit of €49,500, will cost about €757,500 in total, once the cost of financing is included.If you were to buy a second-hand home on the other hand, with a Ber of G, for example, such as the one in our table, you will face a higher rate based on your lower energy rating, of a possible 3.5 per cent, fixed for four years with PTSB. This means higher monthly repayments, of almost €100 extra a month, and a higher overall cost of purchase, at about €806,000. A differential, then, of about €50,000 over the life of the mortgage, based on a steady interest rate. Panel: New or second hand: How much will it cost me to finance my home?NewSecond handMariner’s Point, Wicklow town22 Kinvara Drive, Navan Road, Ashtown, Dublin 7Price (€) 495,000495,000Deposit (€)0*49,500BERAGMortgage rate (%)3.13.5Monthly repayment (€)1,902.362,000.49Total repayable (€)757,515806,054*Help to Buy Source: myhome.ie/itsyourmoney.ie