The home loans that reward you for prioritising the planet

Green home loans are a lender’s way of rewarding borrowers for buying, building or renovating a property that prioritises the planet.

These eco-savvy home loans are offered by the big four banks, but a growing collective of alternative lenders are also taking a leaf out of the same sustainability book.

Finding the right product can be complex, so here’s a breakdown of the green loan landscape.

What are green home loans?

In a nutshell, these mortgages come with a lower interest rate and are available for properties that meet certain energy efficiency standards.

According to some calculations, these lower rates could amount to a $100,000 saving - or more - over the lifetime of a typical 30-year mortgage.

There are generally three types of products in this lending space; a green renovation loan to purchase items such as solar panels or batteries, a green mortgage to buy or build an energy efficient home that meets certain criteria, and a green car loan for electric vehicles.

Who is subsidising green loans?

The Federal Government has stepped in to support the mortgage market in an effort to meet its goal of reaching net zero emissions by 2050, and a more pressing deadline of achieving 82% renewable energy by 2030.

The federal government has stepped in to support the mortgage market on its path to net zero. Picture: Getty

According to the Department of Climate Change, Energy, the Environment and Water, residential buildings in Australia account for 24% of overall electricity use and more than 10% of carbon emissions.

According to energyrating.gov.au, approximately 40% of a typical home’s electricity expenditure goes towards heating and cooling, so any step towards reducing energy bills is one in the right direction.

Canberra has also partnered with state and territory governments to offer incentives for buying and installing renewable energy systems through the Small-scale Renewable Energy Scheme (SRES), reportedly cutting upfront costs by about 30%. 

Who is going green at home?

Rooftop solar in Australia reached new heights in November 2024, hitting four million installations with an average of 300,000 systems fitted each year.

As a result, one in three homes have now gone solar, saving between $1000 and $2000 a year on energy bills. 

Lots of Australian homes have solar panels, with owners often on the lookout for a loan to cover installation. Picture: Getty

Sydney-based Mortgage Choice broker Chantelle Rangel said loans to install solar panels are among her most popular products, however green loans are yet to be considered a major contender.

“I'd say they only make up about 5% of my portfolio, not a lot of borrowers ask for them but many just don’t know what products are out there. Right now there are about six or seven lenders with these types of loans, out of a panel of 38 lenders,” she said.

“It’d be amazing if every lender offered green loans. I think maybe the government needs to do more in terms of creating awareness around how to certify and retrofit your house.

"We hear a lot from government about first home guarantee schemes, whereas we're not hearing much with regards to green lending.”

Although Australians are hyper-focused on slashing interest rates, Ms Rangel said the discounted rates attached to green loans are only be part of the financial incentive.

Mortgage Choice broker Chantelle Rangal says she has not seen much call for green loans. Picture: supplied.

“Our job is also to show people what the benefits are beyond interest rates. When you change the LED lighting, get solar panels, or a battery you significantly reduce your electricity bill and your environmental impact as well,” she added.

“Once you’re certified, it’s easy to get on the green loan track. It’s like any renovations; it’s going to be a bit cumbersome or expensive to get started but in the long term you're going to save money if you use a green loan the right way.”

How to get a green loan

When applying for a green home loan, many lenders require a Nationwide House Energy Rating Scheme (NatHERS) accredited assessor to give the property a rating of 7 stars or higher.

NatHERS, a star rating out of 10, ranks the design of a home based on its energy efficiency.

Whether it’s a whole green mortgage, funds for a renovation, or solar panels, accessing green finance differs from lender to lender. Outside of the Big Four banks, lenders include Firstmac, Regional Australia Bank, Gateway Bank, and Bank Australia.

'Myths about variable home loans': youtube.com/mortgagechoice

Firstmac chief financial officer James Austin said there is scope for green loans to grow marketshare as they only represent about 15% to 20% of new monthly business.

“It’s still quite a small portion of our overall balance sheet, but we’ve only been in the space for about 18 months. We’re expecting the uptake to climb over time,” he said, adding that the pool of green products remains shallow.

“It’s not that widespread, but having said that, we have a number of offerings which are doing well and we've been writing around $100 million a month, collectively, in green loans.”

He described the current application process as “a bit clunky” with room for improvement.

“It can be difficult to get the NatHERS rating on an existing home, so most of the loans we see tend to be new builds. Even then, with inflation and construction costs rising, the cost of building an energy efficient home is now a lot more expensive.

"It still pays for itself in the end, but people are finding it tougher to build to that standard,” Mr Austin explained.

There are pros and cons to green loans, experts say. Picture: Getty

What’s great about green loans

The positives of green loans are:

• Discounted interest rates and rebates: Lender incentives and government assistance can help you meet green goals sooner while saving money
• A higher loan-to-value ratio (LVR): Some green home loans are offered at a higher loan-to-value-ratio than traditional mortgages with some lenders allowing a 90% or even 95% LVR.
• Lower energy bills: Making your home more energy efficient reduces power bills
• A healthier home: Better indoor air quality and maximised natural light increase general wellbeing
• Less maintenance: Sustainable materials like reclaimed wood from old buildings and more mature trees are denser and stronger than new timber
• A reduced carbon footprint: You get to play a role in fighting climate change

Where there’s room for improvement in the green loan space

The disadvantages of green loans are:

• Stricter eligibility requirements: The NatHERS criteria can be “clunky” and the paper trail long
• Fewer lenders to choose from: Only a handful of lenders have green products, but the number is growing
• No transparency regarding a home’s energy efficiency: Mr Austin said Australia could look to other global initiatives when encouraging homeowners to go green or buy an existing energy efficient home.

“When it comes to the NatHERS ratings, the CSIRO holds the data for all homes for up to 10 years and don’t release that data on privacy grounds," Mr Austin said. "Whereas overseas, especially in Europe, you can look up any property you’re thinking about buying and immediately see its energy efficiency.

"We need to move to that, because currently that’s the big stumbling block stopping more lenders coming into this finance area.”