This article by Andrew Bibby, in a slightly different form, was first published in The Observer, 2000

How to find an environmentally friendly mortgage

With a single office up on the edge of the Yorkshire dales near Skipton, the Ecology Building Society is well out of the mainstream mortgage world. But the Ecology, nineteen years old this year (and almost certainly the last in the long line of British building society creations) is successfully proving that there is demand both for specialist green mortgages and for traditional member mutuality.

The Ecology describes its lending policy as designed to promote sustainable housing and sustainable communities. Paul Ellis, chief executive, points out that the society is quite happy to turn away potential mortgage customers, however strong their financial position, if they don’t meet this criteria. "For example, if you are borrowing just for a holiday home or for a livery stable you’d be turned down out of hand," he says. Somewhat more controversially, the Ecology also doesn’t lend on conventional houses such as suburban semis, even where borrowers are committed environmentalists in search of a mutual lender.

In fact, it can be the more unusual properties which other lenders turn down which end up on the Ecology’s mortgage book. For example, the society is helping a Berkshire couple Ken and Carole Neal construct their new home out of clay and straw using traditional cob building methods once used widely in the south-west, and it is also currently funding a new home in Surrey built semi-underground using earth sheltering techniques. On the other hand, the Ecology also offers mortgages for traditional urban houses, such as inner-city terraces and back-to-backs which it says are by their nature energy-saving. Dilapidated properties at risk of disappearing from the housing stock are also looked on favourably

Currently the Ecology charges a fairly competitive 7.39% (with a 0.5% first year discount) on its standard variable rate mortgage (which may be either interest-only or repayment). Unusually, the society also offers a 0.25% cut in the rate after four years, where borrowers have maintained their mortgage satisfactorily. This at present is the one and only mortgage product available, though Paul Ellis says that the society hopes soon to introduce fixed-rate mortgage loans.

The four year discount also allows the society to check that borrowers have undertaken the energy-saving and environmental measures they originally promised. Borrowers will find that the Ecology’s mortgage conditions are likely to include a requirement for adequate insulation to be put in, and where appropriate for windows to be double glazed. Conventional double glazing firms, however, will be disappointed. "There is a requirement that replacement windows are not uPVC. We consider soft or hardwood double glazed windows best for the environment," Paul Ellis says. He goes on to add that the wood must, of course, come from renewable sources.

The Ecology has grown steadily since its birth and now has approaching eight thousand members. The annual meeting (held this year at Slimbridge wildfowl centre) provides an occasion not simply to hear how the business is progressing but also to reinforce the principles of member mutuality, of which surely the Ecology is the most ardent advocate. "If we get any criticism from members over mutuality, it’s over whether we’ve been shouting hard and loud enough that we’re not going to convert," Paul Ellis says. Carpet-baggers venturing in would definitely find themselves in the wrong place.

Among the Ecology’s more established and portlier colleagues in the building society movement it is the Norwich and Peterborough which has done most to promote its desire to help green-minded borrowers. The N&P, now the twelfth largest remaining building society, launched what it describes as a ‘green mortgage’ package for newly built houses in 1998, and extended this a few months later for existing buildings.

For new builds, the N&P is currently offering a 1% discount off its variable rate for four years (increasing to 1.25% with compulsory insurance), provided houses meet tight energy efficient standards. For existing properties, N&P’s green mortgage discount rates drop respectively to 0.75% and 1%, but the society compensates with a free energy survey offer and a £500 cashback payment towards energy-saving home improvements. N&P also offers a favourable first year discount on further advances to its existing mortgage borrowers where the extra money is to be spent on energy-saving measures.

Whether the N&P green mortgage deals really represent much of an incentive is perhaps debatable. You don’t need, for example, to be energy conscious to go for one of the other discounted mortgage products available at present from N&P. These include three-year 1.75% and 2% discount deals (the difference relates to the size of the loan-to-value ratio), in both cases with insurance compulsory. Standard packages from other lenders also look rather more attractive: another mutual the Derbyshire, for example, has a five year 1.45% discounted mortgage product on the market.

The Ecology Building Society, 0845 674 5566. Norwich & Peterborough, 01733 362636