Green loans offer a cheap option to make your house more efficient

Amanda Jelicich-Kane has a plan. She wants to make her inner-western Sydney home all-electric within the next five years.

The 40-year-old business owner recently moved her family of four into a 19th-century Balmain house and spent quite a bit of money renovating it to make it draught-proof.

An energy assessment of her home revealed adding solar panels should be her next priority, but spending a further $12,000 felt daunting.

While an energy-efficient home can save you thousands of dollars in power bills each year, the initial outlay for solar, batteries and heat pumps is expensive. But luckily for people like Amanda, there are a few ways to pay for it.

Green finance options offer reduced interest rates on loans for energy efficiency upgrades.

It’s a hard-to-navigate space, so we will walk you through two kinds of green finance.

What is a green loan?

Let’s start with the basics. A green loan can be used for any upgrades that make a home more energy-efficient.

While the menu of things slightly changes depending on who you borrow from, this could be insulation or double-glazing windows, but also things such as rooftop solar, batteries, heat pumps, air conditioning or even EV chargers.

The government is offering a range of green loans through the Household Energy Upgrades Fund (HEUF).

This is where Grace Tam comes in. She is the head of consumer finance at the Clean Energy Finance Corporation (CEFC).

“We’re the Australian government’s green bank,” she explains.

She is working with financial institutions on creating cheap loans through the HEUF in a bid to make it really easy for people to upgrade their “glorified tents”.

She says there are currently four loans on her books — one through a lender called Plenti, while Westpac and ING are offering a tack-on product for people who already have mortgages with them. In December, they announced their latest investment with Bank Australia.

There are some caveats to getting approved for one of these loans, such as what it can be used for, the use of accredited suppliers and how much you can borrow.

Tam says the private sector has also jumped aboard and banks, credit unions, mutual banks and non-banks are all competing in the space.

“There’s a wide range out there,” she says.

Amanda Jelicich-Kane found out the bank she was already with was offering a product that would suit her needs to pay for her rooftop solar.

“Well, we were already with [the bank] so it made sense to apply through them, rather than going to another bank,” she says.

“The interest rate seemed quite low and reasonable. And I thought that because we were already with the bank, the process would be quite simple.”

How do I apply for it?

Amanda says she was lured by the attractive interest rates, but the process to get approved was arduous.

“It’s actually quite complicated to apply for it, much more so than I realised,” she says.

“It’s like applying for a full home loan. And ours was only, I think it was like $12,000 we applied for. So, when I was kind of halfway through the process, I thought, ‘Oh gosh, this is actually a bit more work than it’s worth.’

“I think we had to have multiple talks with someone from [the bank] to work through it. So, it seemed like a lot of work for that amount of money.”

Grace Tam says it’s a problem she and her colleagues are aware of as the energy efficiency space is complex and has many players involved.

She wants to make that process as easy as possible for people and that’s why the CEFC has worked with a “concierge” digital platform that does the hard work for the consumer.

She says that based on your address, you’ll be able to get in touch with accredited installers near you who can give you a quote on interest rates and borrowing costs

“It’s all done for you […]. You don’t need to go and Google all of this yourself. We want to take the complexity out for the consumer. It’s complex enough.

How much can you save?

Tam says there are serious savings to be made by applying for a green loan offered through the HEUF.

Plenti shaves up to 3.34 per cent off its standard loan rates while the Westpac loan is currently priced at 4.49 per cent compared to a typical mortgage of 6 or 7 per cent.

ING has introduced a new offering with a rate of 3.74 per cent and the Bank Australia Clean Energy Home Loan is a variable rate home loan with a 5.38 per cent rate for the first five years of the loan.

“What is clear, if you look at the mortgage rate for Westpac and ING that they have offered, you can compare the standard mortgage versus the special sub-account that they’ve carved out for these green upgrade purposes,” she says.

What about a green mortgage?

The idea behind a green mortgage is to lend a person money with the specific intention of buying or building a house that produces less carbon emissions, by being energy efficient or retrofitting an older house.

Borrowers are essentially incentivised to go with a green mortgage through lower interest rates, provided they tick some key boxes.

Tam was in charge of working out how the government could support an impactful green mortgage back in 2018.

The CEFC has since backed green home loans with several financial institutions.

“What we want to do is to reward someone for going further and buying a home that is high in energy performance,” Tam explains.

Those types of technologies include things like solar panels, batteries and hot water heat pumps.

Or it can be figured out by getting an officially recognised scorecard assessment that gives your home an energy star rating from 0 to 10.

Tam says other banks and lenders have since copied the approach and are offering similar products with or without the government’s support.

“Some just want to test it out first before they come to us and some just want to have their own offer, and they didn’t feel the need to approach us.”

How much can I save with a green mortgage?

Marisa Hoffenberg is a green home loan expert and has been working in the space for years. She says depending on a client’s situation, she believes a green home loan almost always offers the biggest discounts for her clients.

“Now I’m looking at someone and she has an amazing rate relative to other people. And I’m still saving her $30,000 over the life of a [green] loan.”

She says some of her clients are passionate about sustainability and don’t mind investing in building a slightly more expensive home that fits the bill of requirements for a green loan.

Others, she says, are interested in improving energy efficiency but were mainly driven by the financial gain.

“Because you’re getting such a huge discount on your home loan, they go, ‘Oh, yes, that makes financial sense. I’m going to go ahead with it.'”

Hoffenberg admits that there are hurdles in getting approved for a green mortgage and she found it “difficult” in the beginning.

“But with everything, there’s a learning curve. You understand what to do and how to get it through to make it work. So yeah, it’s learning the tricks, understanding how to do it and making sure all the details are 100 per cent so that the loan will go through.”

Hoffenberg herself is passionate about sustainability and gets a kick out of helping her clients achieve the biggest discounts.

Why is the government supporting the loans?

The federal government has a goal to reach net zero emissions by 2050 and to reach 82 per cent renewable energy by 2030.

Residential buildings account for nearly a quarter of overall energy use and more than 10 per cent of carbon emissions, so helping households electrify will be crucial to meeting those goals.

Australian households typically have poor energy efficiency, especially older homes built before standards for things like insulation came in.

“And in the building industry, they refer to the Australian properties as being like glorified tents. Forty per cent of your electricity goes towards heating and cooling.”

While there are a range of government programs and subsidies, a key part of the federal government’s strategy is to provide cheaper finance.

“So, what we’re looking to do in a green home loan or green personal loan, any kind of green consumer loan, is to help Australians upgrade their home so that it’s more comfortable to live in.”

… and why are the banks doing it too?

Tam says the private sector also has a vested interest in driving energy efficiency with green finance products. Member-based banks understand that living in a more comfortable home is important for their members.

“They’re all looking at offering green loans to the members who are their customers. Credit unions are great like that,” she says.

Another reason is that, just like the government, the major banks have all signed up to net zero banking alliance targets.

“They have to do something,” she says.

“Many are either offering something already or they’re considering doing so.”

She said another reason was fundraising in a capital market and green finance was a sizeable market share everyone wanted to tap into.

What’s more, home owners were attractive customers to the banks as they defaulted less on their loans.

“It’s time for us to actually make it better, with a better consumer journey, better rate.”

Amanda, would you do it again?

Amanda says having spent a bunch of money already on retrofitting her home, she was happy to reduce the cost of the solar system to smaller monthly sums.

“It was another big cost and I thought I’d rather keep that cash for us and then have a loan that just was a relatively small monthly repayment,” she says.

Next on the list for her family home are a battery and solar hot water. She loves saving money on energy bills but her true motivation lies elsewhere.