Green loans to make your home more energy efficient

Kitchens and bathrooms... these are the classic home improvement hotspots. The main courses on the renovation menu, so to speak.

It turns out Australians also have a real appetite for a side dish of energy efficiency. Research conducted by Westpac last year found that nine in 10 homeowners looking to renovate in the next five years would consider making sustainable upgrades to their properties at the same time.

Among the energy-efficient considerations at the top of wish lists were solar panels (38%), home batteries (27%), solar hot water systems (25%), insulation (23%) and double-glazed windows (22%).

As with the various improvement possibilities themselves, there's no shortage of reasons. For some, it's about lowering their bills, adding value to their property or having a more independent energy supply. For others, climate considerations, such as ditching gas, are major motivators.

There's clearly plenty of desire. The issue is managing the cost. After all, a new solar system and battery alone will come with a five-figure price tag.

So, for households that don't have that kind of cash on hand, how can they fund energy-efficient upgrades? One starting point would be to see if they qualify for any incentives or rebates offered by various governments.

The reality is that these initiatives won't be available to every household, nor are they likely to cover the full cost of making upgrades. In that case, another option may be a green loan.

How green loans work 

As products such as solar panels and home batteries have gained popularity, lenders have jumped at the opportunity to provide finance to meet this demand. In many cases, this comes in the form of specialised personal loans, which are typically known as green loans but are sometimes labelled as sustainable or eco loans.

"Green loans have certainly become a much bigger focus in the past five years," says Richard Whitten, a money expert at comparison website Finder.

"We've tracked a lot more lenders offering personal loans with special rates and contracts that are specifically for green home renovations."

This growing list of providers offering green loans includes large banks, such as Bendigo Bank and Commonwealth Bank, customer-owned institutions, such as Community First Bank, and online lenders, such as Brighte.

However, while many of these loans are available to a broad range of people, some are limited to mortgage holders. For example, the CommBank Green Loan is only available to existing home loan customers.

Green loans aren't run-of-the-mill personal loans that can be used to fund vehicle purchases or holidays. Instead, they are limited to certain purposes.

"They are usually for home renovations - specifically for things that make a home more energy efficient. That could be installing solar panels, water heating systems, insulation, double glazing - things like that."

Green loans differ from regular personal loans in another key way: cost.

At present, Whitten says that it's relatively common for regular personal loan rates to range from around 8%pa all the way up to 20%pa depending on a borrower's credit score and financial position. Green loan rates, meanwhile, tend to be much lower.

"Green loans are definitely on the lower side if you're comparing them to a standard personal loan. A lot of green loans seem to sit in the 7%pa to 10%pa range, which is quite low.

"This is not all that surprising because a lot of them are for a very specific purpose and generally target homeowners, so there's a bit of an extra safety net for lenders."

What about green mortgages? 

Given the rise of green personal loans - some of which can only be taken out by home loan customers - there are also a handful of green mortgages on the market.

"There are a few green home loans out there, but not a huge number," says Whitten. "Bank Australia has its Clean Energy Home Loan, loans.com.au has its Solar Home Loan and there are a couple more lenders that offer similar things."

While green personal loans are generally targeted at homeowners wanting help to fund energy-efficient upgrades, green home loans tend to be for people intending to buy or build homes that meet a certain threshold of energy efficiency.

"Bank Australia uses a system called NatHERS [Nationwide House Energy Rating Scheme] to determine if a home meets the energy-efficiency score needed to be eligible for a loan," says Whitten.

"So, does it have solar panels? Does it have energy-efficient water systems? Is it insulated? Does it have double glazing? All these sorts of things go into that assessment."

As with green personal loans, the major benefit of green home loans is that they tend to offer relatively competitive interest rates.

"In the case of those examples [Bank Australia and loans.com.au], the loans come with quite low rates. So, they're quite competitive products, although because of the very specific eligibility, they're not home loans that everyone can get."

Household energy scheme

The good news for homeowners eyeing energy-efficient upgrades is that a new initiative is bringing down the cost of green loans even further.

In the 2023 Federal budget, the government committed $1 billion to establish a Household Energy Upgrades Fund (HEUF) administered by the Clean Energy Finance Corporation (CEFC).

"The HEUF grant is specifically targeted at renovation - so upgrading the performance of existing homes," says Grace Tam, the head of consumer finance at the Clean Energy Finance Corporation.

"In the scheme of home energy ratings, where an energy rating is out of 10, the average Australian home is rated at about 1.7. That's quite poor. It means that a lot of energy is required to heat and cool the home.

"So, in order to help Australians live in more comfortable homes, and homes that are cheaper to run, the Australian government has given us $1 billion to support homeowners to upgrade their homes."

This support is coming in the form of low-cost loans. To help more households invest in the likes of solar panels, batteries and other energy-efficient initiatives, the CEFC has partnered with a handful of lenders who have started rolling out HEUF-supported green loans.

So far, there are four participating lenders. While each loan is structured differently, the common denominator is that they all offer substantially discounted interest rates, thanks to the HEUF.

First of all, there's the HEUF Discounted Green Loan from Plenti. This is a personal loan that gives eligible customers a discount on the online lender's normal green loan rate.

Then there's the Green Upgrade Loan from ING, which gives eligible mortgage customers access to a discounted loan purely for making energy-efficient upgrades. Westpac's Sustainable Upgrades Home Loan can be used for similar purposes but acts as a second home loan.

There's also the Clean Energy Home Loan from Bank Australia. As noted, this is a home loan, not a personal loan, which comes with a discounted rate for borrowers who are either looking to buy or build a home that meets certain energy efficiency standards.

In addition to helping to decarbonise homes and further develop the home energy technology ecosystem in Australia, Tam hopes that the Household Energy Upgrades Fund will go some way to providing better living experiences for many households.

"Many of us don't even know how bad our homes are. So, I'm hoping that through this program we can help people save on energy bills and also get information to consumers to help them understand the actions they can take - even simple ones like installing better curtains or door snakes."

Getting the tick of approval 

As with any loan or credit product, taking out a green loan won't be as simple as calling up a bank and getting approval on the spot. Beyond any individual hoops that borrowers may need to jump through, both regular green loan providers and those participating in the HUEF scheme have set criteria.

First, each lender will have a different list of eligible products, so it's worth checking their website or the product disclosure statement before applying.

For example, CommBank's Green Loan can be used for batteries, electric cooktops, electric vehicle charging stations, energy-efficient window treatments, solar or heat pump hot water systems, solar panels and even virtual power plants.

The eligible technologies list for HEUF loans is broadly similar, but also includes air-conditioners, ceiling fans, home insulation and pool pumps. However, unlike many standard green loans, finance for solar panels won't be available to every household.

In addition to the types of products that a green loan may be able to fund, Whitten says there may also be restrictions on particular product brands or installers.

"Often there will be a list of approved products with certain energy ratings that borrowers will need to use and lenders may want to know that you're using an accredited installer in order for you to qualify for the loan. Some lenders will also want to see a quote or an invoice as part of the application."

Home energy assessment 

As enthusiastic as some households will be about the prospect of saving money on their bills or making their homes more energy efficient, working out what to upgrade and who to employ can be a challenge.

The good news is that a number of green loan providers have rolled out dedicated energy assessment platforms, which can not only help borrowers work out which energy-efficient upgrades may deliver the best bang for their buck but also match them with accredited installers.

One of these is a home electrification platform called BoomPower, which is working with the likes of Bank Australia, ING and a number of energy retailers.

"In the case of the Clean Energy Finance Corporation's HEUF funding, we connect ING customers with suppliers and give them a simplified view of what home electrification could look like for them," says Alex Houlston, chief executive and co-founder of BoomPower.

"And that's the full sweep, from solar and battery to induction cooktops and ovens. We aim to give people a sense of what electrification will look like, how much they could save, what it means in terms of emissions and what it will mean for their family's budget."

The platform can even match borrowers with certified tradespeople to make the upgrades happen.

"We're not only about helping people understand what they can do and the impact it can have financially, we also connect them with suppliers we have vetted, plus we check that the tradie installing the product is fully qualified and the products are up to scratch."

Of course, there are also a number of other companies that can provide homeowners with home energy assessments or audits beyond the services available through green loan providers.

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