Has the age of green lending arrived?

In tough times, saving on mortgage payments while also saving the planet sounds too good to be true, but a quiet wave of green loan initiatives at banks is gathering strength

ANY VISIT to a supermarket is enough to make consumers think that picking an environmentally conscious product is a choice that comes at a premium. With inflation taking hold and the cost of living increasing, the good intentions of many may seem in even more danger of being relegated to the dustbin of growing economic constraint. But with green lending this is not necessarily the case when it comes to your mortgage. More lenders are offering green home loans with discounted interest compared to a regular home loan.

The green lending movement is hardly new. In 2002, Bendigo and Adelaide Bank was the first Australian bank to offer lower interest rates for goods that were energy efficient or used renewable energy sources, with its personal green loan. But momentum appears to have been accelerating recently. Last year, Suncorp began offering a Green Upgrades Equity Home Loan for existing mortgage holders who commit to undertaking energy- and water-efficiency home improvements, such as by installing solar panels, double-glazed windows, rainwater tanks, or an electric vehicle (EV) charging point. Other banks that offer discounts on interest rates for qualifying homes or renovations include Regional Australia Bank, Australia Military Bank, Bank Australia and Firstmac.

“We've seen a significant portion of borrowers coming to Gateway for a Green Home Loan where their home has established energy-efficient features.” Customers are switching to Gateway to get a reduced rate but also aligning with other environmental initiatives such as Gateway’s Eco Debit Card, which is made from plant-based materials rather than traditional PVC and is a lot more environmentally friendly. The broker role Regardless of the current size of the market, the overall direction in terms of product choice and customer sentiment appears unmistakable. The increasing regularity of so-called ‘once-in-a-century events’ such as bushfires and floods have pushed climate change issues into financial sector boardrooms and motivated more borrowers to actively seek out green loans. “The demand for green financial products is only increasing,” says Drummond. Simply having them available as a choice can generate business from those borrowers who are already environmentally inclined. “Offering a range of green products will help provide brokers’ clients with a breadth of products and services that can ensure they continue to meet the needs of their clients.”

Australian NatHERS star ratings

And in August, Commonwealth Bank became the first big four bank to introduce a green-offer home loan rewarding new and existing customers with a lower interest rate for reducing their dwellings’ environmental footprint. More personal green loan options are coming to market, and sustainable finance is also gradually becoming more widely available to commercial banking clients as companies seek to tap into the fast-growing pool of capital dedicated to funding the global shift to a low-carbon economy. “Now there are more loan options to support customers in this market, and [lenders are] offering more competitive rates to support these initiatives,” says Drummond.

“In a rising-rate market, these products will help drive the market.” Another impetus is recent changes to Australia's National Construction Code, which mean that new residential dwellings will need to achieve the equivalent of a 7-star NatHERS thermal performance. Under the revised code, new liveable-housing requirements and new energy-efficiency and condensation mitigation requirements commence on 1 October 2023. Green shoots rather than trees Despite the wide range of initiatives now available, recent growth in green lending is from a low base, and Australia lags many overseas trends. “This sector is currently a very small segment of the market,” says Drummond.

Gateway Bank is one of Australia's leading customer-owned banks and has been in operation for over 60 years. Gateway offers a wide range of products and services covering everyday banking, home loans, personal loans, reverse mortgages and commercial mortgages. We're proud to have been named Australia's Best Small Mutual Bank 2022 by Mozo. Our Green Plus Home Loan was also recognised by Mozo as Australia's best Green Home Loan in 2022, underpinning our commitment to the bank that supports our customers' pockets and their planet.

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“Most players in this industry are looking at this and see why apartment values are going up, not down,” he says. “Most building owners are looking straight through [the pandemic]. Even if they own in an area where rents are soft today, this will come back when the borders open, students return and we are bringing 400,000 people in per year. We are not building enough housing for that many people. “Pre-pandemic, the market was super tight almost everywhere, so I see that when the pandemic ends or at least the borders reopen, the demand for rental units will

“Investing in energy-efficient solutions like solar, insulation and double glazing can seem daunting, but educating customers on the medium- to long-term benefits and savings on utility bills is key”

Zeb Drummond, Gateway Bank

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The Green Plus Home Loan also comes with a 100% Offset Account and an environmentally friendly plant-based VISA Eco Debit Card. It's designed for homeowners with a property that has a 7-star or higher energy-efficiency rating from the Nationwide House Energy Rating Scheme (NatHERS) or the Residential Efficiency Scorecard. For those who don’t quite make the 7-star rating or who have made improvements but not been rated, there is the Green Home Loan with 100% Offset and an Eco Debit Card; this option offers a 0.15% p.a. discount on the regular home loan rate. Green-minded consumers have long been drawn to such initiatives as a nice-to-have though expensive perk, ever since the term ‘global warming’ became common parlance. Think organic coffee beans versus mass-produced fare.

With more lenders getting behind green initiatives, Drummond is optimistic the burgeoning sector has a sunny future. “As we see more lenders move into this space driven by increasing consumer demand, this is an area that will continue to grow and grow at pace,” he says. “It’s an exciting area to be in and one which we believe brokers will need to be across in the future as consumers increasingly look for options to fund energy-efficient homes.”

“The demand for green financial products is only increasing”

Zeb Drummond, Gateway Bank

By saving borrowers cash on repayments, this rewards those who buy an energy-efficient home or upgrade features of their existing house. “Our Green Home Loans are designed to provide extra support to borrowers who have or are planning to make their homes more energy efficient,” says Zeb Drummond, chief operating officer at Gateway Bank. “Well-positioned green loans like Gateway’s can help remove potential barriers for customers to make their homes more energy efficient and environmentally friendly.” Gateway’s Green Plus Home Loan has a variable rate set at a minimum discount of 0.25% p.a. on the rate of its Premium Package Home Loan, for the life of the loan. This can add up to large savings over a period of years, in addition to any savings accrued from the green features themselves, such as lower electricity bills as a result of solar panels.

Industry expert

Zeb Drummond

Gateway Bank

Industry experts

Zeb Drummond is chief operating officer at Gateway and has over 18 years of banking experience across a range of disciplines and organisations, from the big four to smaller customer-owned banks. Drummond has been at Gateway for seven years. He currently leads its sales and operational teams, including direct and third-party sales functions, customer service teams, and lending origination, settlement and transactional service teams. He also manages the relationship with Gateway's broker aggregator partners.

Gateway Bank

Zeb Drummond

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Beyond Bank

Darren McLeod

Heritage Bank

Stewart Saunders

MFAA head credit adviser, Finsure Finance and Insurance

Christopher Lee

Zeb Drummond

Gateway Bank

Industry experts

Gateway Bank

Zeb Drummond

Beyond Bank

Darren McLeod

Heritage Bank

Stewart Saunders

MFAA head credit adviser, Finsure Finance and Insurance

Christopher Lee

Zeb Drummond

Gateway Bank

Darren McLeod

Beyond Bank

Stewart Saunders

Heritage Bank

Christopher Lee

MFAA head credit adviser, Finsure Finance and Insurance

Mark HarChristopher Leeon

Heritage Bank

Stewart Saunders

Beyond Bank

Darren McLeod

Zeb Drummond is chief operating officer at Gateway and has more than 18 years of banking experience across a range of disciplines and organisations, from the big four to smaller customer-owned banks. Drummond has been at Gateway for seven years. He currently leads its sales and operational teams, including direct and third-party sales functions, customer service teams, and lending origination, settlement and transactional service teams. He also manages the relationship with Gateway's broker aggregator partners.

Gateway Bank

Zeb Drummond

The building shell does practically nothing to reduce the discomfort of hot or cold weather

0-star rating

The minimum standard in most states and territories. It indicates good but not outstanding thermal performance

6-star rating

The home may not need any artificial cooling or heating to keep you comfortable

10-star rating

Source: Nationwide House Energy Rating Scheme

Source: IEA 2021, CBRE Research

Growth in global investment in energy-efficient buildings (US$)

$195bn

2021

$180bn

2020

$160bn

2019

$155bn

2018

$155bn

2017

$150bn

2016

$140bn

2015

Some high-profile areas such as loans for EVs are seeing demand hindered by supply issues, and helping customers understand the full spectrum of benefits they will receive with a green loan remains a major task. Gateway research shows less than 10% of borrowers have a good understanding of what a green home loan involves. “Investing in energy-efficient solutions like solar, insulation and double glazing can seem daunting, but educating customers on the medium- to long-term benefits and savings on utility bills is key, as well as the reduced impact on the environment,” says Drummond. Commercial green lending, too, has low penetration, with just 3% of commercial real estate loans in Australia being green, according to CBRE. The commercial market comprises around 50% of transactions for office buildings, 18% for industrial, 19% for retail and 12% for residential. The biggest opportunities appear to be in new industrial property for commercial, or in refinancing existing real estate debt on energy-efficient assets. Many homeowners with improvements completed don’t realise that they can qualify to switch to a green loan and enjoy a lower interest rate. “For homeowners that have already made their homes more energy efficient, and particularly those that have had their homes certified as being energy efficient, we want to support and recognise the steps they’ve taken,” says Drummond.

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