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Ethical Mortgages

Finding the most ethical mortgage, with ethical and environmental ratings for 40 mortgage providers, and recommended Best Buys and what to avoid. 

We look at bank and building society mortgages, green mortgages, credit unions, Islamic mortgages, brokers, and alternative housing options. 

About Ethical Consumer

This is a product guide from Ethical Consumer, the UK's leading alternative consumer organisation. Since 1989 we've been researching and recording the social and environmental records of companies, and making the results available to you in a simple format.

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What to buy

What to look for when choosing a mortgage:

  • Is it a building society? Building societies score far better in this guide than conventional banks. For a start, building societies are less involved than banks in financing damaging industries such as nuclear weapons, mining and fossil fuels.

  • Have you sought advice? It can be helpful to consult an independent mortgage adviser before choosing your mortgage. A good place to find an adviser is unbiased.co.uk. And Money Saving Expert explains more about mortgage brokers too. Let them know you are looking for an ethical mortgage.

     

Subscribe to see which companies we recommend as Best Buys and why 

What not to buy

What to avoid when choosing a mortgage:

  • Is it financing climate change? All of the big banks have billions of pounds invested in fossil fuels, including the most damaging ones like tar sands and ultra-deep-sea drilling. Also be aware of investments in the fracking industry.

  • Is it funding nuclear weapons or cluster munitions? Many banks lose marks in our Arms and Military category for funding these most destructive of weapons.

Subscribe to see which companies to avoid and why

Score table

Updated live from our research database

← Swipe left / right to view table contents →
Brand Score(out of 20) Ratings Categories Positive Scores

Our Analysis

Finding an ethical mortgage 

A mortgage is generally the single biggest investment for most people, and making an ethical choice is important.

2022 has been a stressful time for some homeowners, with mortgage interest rates the highest they have been since the 2008 financial crisis, but mortgages keep ticking, people keep buying houses and banks keep benefiting.

By the end of a 25-year term, a borrower will commonly have paid 1.3 - 1.9 times more back on the amount they were lent at the beginning. Unfortunately, the lenders' profits often end up invested in particularly problematic industries, such as fossil fuels, arms or unsustainable agriculture.

In this guide we look at how to choose an ethical mortgage and why building societies are usually a better choice compared to banks. We also explore whether mortgage lenders could do more to help address issues such as the urgent need to improve the poor energy efficiency performance of many UK houses.

Ethical mortgage lenders

According to the Building Societies Association, building societies currently hold around a quarter of the total mortgage market share.

We hope to see an upward trend in this because, as a quick look at our scores table clearly shows, building societies consistently outperform most of the banks when it comes to ethics, with all of the building societies scoring higher than any of the mainstream banks, bar The Co-operative Bank.

There is a world of difference between the ethics of lenders appearing in the top and the bottom thirds of our scoring table.

The good news is that a quick search on a comparison website shows that several building societies – including some of our Best Buys – also offer the most competitive mortgage rates.

Coins with seeds on top and model of house

What are green mortgages?

There are two types of ‘green mortgages’ on the market: ones that give you cashback or a better interest rate for buying an energy-efficient home (or living in one in the case of remortgagers), and those which give you such benefits for improving it.

We think the second type are probably more likely to directly drive change, although the first might drive some change by depressing the price of lower-rated homes, thereby persuading existing owners to upgrade before they sell. We list which mortgage lenders offer which type of green mortgage below.

The number of both types of green mortgages on offer is swelling, which isn’t only being driven by idealism. Not only is it looking like energy bills may affect your ability to meet your mortgage repayments, but regulation is being discussed that may affect the future value of inefficient properties – see the section on EPCs below.

Green mortgages for buying or remortgaging

The following mortgage lenders currently provide green mortgages for buying an energy-efficient house, or remortgaging on an energy-efficient house:

  • Ecology Building Society
  • Nationwide Building Society
  • Shawbrook
  • Barclays
  • NatWest
  • Virgin Money
  • Gatehouse Bank
  • Paragon Bank
  • Leeds Building Society

Green mortgages for improving/renovating

The following mortgage lenders currently provide green mortgages for improving or renovating to be more energy-efficient:

  • Ecology Building Society
  • Nationwide Building Society
  • Shawbrook
  • TSB
  • Halifax
  • Co-op Bank
  • Virgin Money
  • Saffron Building Society
  • Skipton Building Society

Are green mortgages worth it?

Unfortunately, these mortgages in general seem to be as yet somewhat weak tea.

Money Saving Expert, in an article updated in October 2022, says: “Yes, any preferential interest rate and/or cashback that comes with a green mortgage could make the deal cheaper overall than any equivalent non-green deal from the same lender. However, we're yet to see ANY green mortgage deal offered by high-street lenders [our emphasis] that can't be substantially beaten in interest rate by normal, non-green mortgage deals on the wider market.”

It is good that some lenders are starting to try to support green building, particularly with the second type of green mortgages (for improving energy efficiency), and we do allow a decent discussion of green mortgages to count towards a building society’s carbon rating. However, it seems that most are currently unlikely to save you money.

This may change in the future though, so it is worth continuing to check the figures.

Ecology Building Society is a bit different from the others because it focuses entirely on supporting green building. Its C-Change mortgages reduce your mortgage interest rate for the whole of the rest of your mortgage term, either based on the energy efficiency of your property, improvements that you make to it, or other green improvements like adding solar panels.

For example, it offers a 0.25% discount for each EPC (Energy Performance Certificate) grade improvement, so a move from EPC D to EPC B would earn a 0.75% discount. Money Saving Expert notes that its interest rates prior to these reductions can be quite high, but if you are intending to do a green build or renovation, it is definitely worth looking at. It also makes a special effort to support innovative and unique projects, which may not have been funded otherwise, and recently became the first lender to launch a cashback option to support the installation of heat pumps.

Switching mortgages

With interest rates currently rising in the UK into 2023, it is a tricky, and certainly stressful time for remortgaging. However, when the time comes, switching to a more ethical mortgage lender is easy and doesn’t have to incur huge upfront costs.

Comparison sites can help you find the right lender, but many deals are often only available through mortgage brokers.

Finding an ethical mortgage broker

Navigating the world of interest rates, fixed-terms and repayment options can be a bit overwhelming – especially if you are also thinking about the ethics of your mortgage!

You don’t have to use a mortgage broker, but they can help make the process of finding the right mortgage a lot simpler.

There are a huge number of brokers in the UK, and there are also multiple mortgage broker directories listing them. It was not within the scope of this guide to rate all of them or provide recommendations on that basis. Finding a local mortgage broker can be done, for example, through unbiased.co.uk or vouchedfor.com.

In 2020, The Co-operative Bank and Mortgage Solutions published a short booklet titled ‘The Broker’s Guide to an Ethical Mortgage Market’. The guide urges brokers, amongst other things, to have an ethical policy and consider who they are working with. Whether or not this was taken to heart by brokers is unclear; we’ve only found a handful of mortgage brokers that market themselves as ethical, and even then we’ve not seen evidence of how they are ethical.
 
One company, called WR Ethical, indicated on its website that its “work uses Ethical Consumer data to let you know about the impact of your mortgage options”. But, in the same way that you can ask an insurance broker to restrict their search to some of Ethical Consumer's favourite firms, it might be possible to do the same with a traditional mortgage broker. We'd love to hear from anyone who has any experience of this, or of trying to do it.

Why are building societies a more ethical choice?

The majority of building societies’ lending is to people, while banks have a much wider portfolio and tend to also lend to companies. And, unless they have a detailed and extensive ethical policy, like The Co-operative Bank does, banks often lend to companies that operate in particularly problematic sectors. These sectors range from fossil fuel extraction to armament to the unspeakable exploitation of animals.

All five high streets banks – Barclays, HSBC, Lloyds, NatWest, and Santander are involved in financing fossil fuels, with Barclays being the sixth largest financier of fossil fuel extraction in the world. HSBC was found to extensively contribute to the exploitation of the Amazon rainforest. It is also the largest UK financier of mass destruction by investing in companies building nuclear arsenals according to the latest report by Don’t Bank on the Bomb. Many of the banks in our guide have also lost marks for being involved with companies dealing with animal exploitation – from factory farming to animal testing.

Building societies are also less likely to use tax avoidance strategies – none of them were marked down for having subsidiaries in tax havens. Meanwhile, with the rare exception of The Co-operative Bank and a few banks in the middle of our score table – Metro, Virgin Money, Kent Reliance, Paragon and Handelsbanken – all banks have lost half or a whole mark for their tax conduct.

Excessive payment of directors is also more prevalent amongst banks. Although most building societies, apart from Ecology and Principality, lost half a mark in our Anti-social Finance category (which means that directors received over £250,000 a year), most banks lost a whole mark for paying several million pounds to their CEOs.

Credit union mortgages

Credit unions are mutuals like building societies, but don’t focus so much on mortgages, instead they focus on accounts, loans and a range of financial services to their members.

They are also not-for-profits so represent a good ethical option.

But some credit unions do also offer mortgages and they can sometimes beat the rates on the high street. However, this is mainly in Scotland. For example, to apply for a Glasgow Credit Union mortgage you must be a member and live or work in the Glasgow postcode. As these products are not widely available to all UK consumers we have not included them in our guide, but it could be worth looking into whether there is a credit union in your area that offers mortgages.

Full online access to our unique shopping guides, ethical rankings and company profiles. The essential ethical print magazine.

Islamic banks and mortgages

Islamic banks follow Shariah law which requires that, for a financial product to be considered Halal, or permitted, no interest is charged on it.

In the most common Islamic mortgage schemes, the borrower purchases a certain percentage of the house and the mortgage lender purchases the remaining percentage. The monthly payments to the lender then consist of part capital, part rent and part charges. These payments contribute to the gradual buying of the whole property from the mortgage lender.

As the money is made through rent and charges rather than interest this is seen as Halal by many Muslims.

Some Islamic banks also claim that they provide ethical banking. This is due to the fact that Islamic laws require them to avoid transactions in certain industries, such as arms, gambling, tobacco and pornography. In this guide we rated the two largest Islamic banks in the UK, Al Rayan and Gatehouse Bank.

A quick look at our score table shows that both of them are currently placed behind all of the building societies.

Alternative housing options

Renting is not a positive experience for many people in the UK with ever increasing costs, low-quality housing and unresponsive landlords. It’s not surprising that many people hope to move on to home ownership. But with that goal becoming increasingly inaccessible to many it might be worth considering some alternative options.

Co-housing and housing co-ops offer a middle ground between renting and ownership that can work really well.

How do housing co-ops work?

Housing co-ops essentially work by making you both a tenant and a landlord. The house or houses are owned by a registered co-operative which manages it. The membership of the co-op is comprised of whoever is living in the housing.

This puts people in control of their own rent and maintenance, which can often mean lower costs and better living conditions.

Housing co-ops come in all shapes and sizes. They can be a group of people living in a single property and united by a set of common values and beliefs, or they may be comprised of separate private living spaces occupied by a variety of different people. Co-housing projects are a collection of private dwellings but with some shared spaces to encourage a strong community.

Can you get a mortgage to set up a housing co-op?

You can indeed set up a housing co-op with a mortgage. This may be a more accessible route to better housing for those on a low income because the mortgage won’t be based on just your own finances.

Radical Routes is a network of housing and worker cooperatives. They have various resources and a wealth of experience on how to set up a housing co-op. Realising that “most conventional banks are not prepared to lend to the kind of project we aim to support”, they have set up an ethical loan fund. This innovative loan fund is not run for profit and is controlled by its users (the borrowers). According to Radical Routes, getting a mortgage is one of the final steps to setting up a housing cooperative. You can find full details of the steps they outline as well as further information by visiting the Radical Routes website.

And while conventional banks indeed are disinclined to provide housing co-ops with mortgages, there are a few that encourage them. One of these is Triodos Bank, which doesn’t offer mortgages for individuals so its not in this guide, but it welcomes housing co-ops. On its website, Triodos says “With us, you benefit from a long-term relationship with a partner genuinely committed to the social and affordable housing sectors, and knowledge of the issues you face.” You can even get capital raising advice from their corporate finance team.

Another lender committed to co-housing is Ecology Building Society. They state that they specialise in mortgages for the creation of intentional community-led housing communities.

Bar chart showing distribution of housing stock falling into energy categories A to G. Roughly 2 million in B, 6 million in C, 9 million in D, 4 million in E, under 1 million in F and some in G.
The distribution of EPC ratings on dwellings in England and Wales. Chart from Department for Levelling Up, Housing & Communities, 2022, Energy Performance of Building Certificates in England and Wales: April to June 2022.

EPCs, the energy crisis, and net zero

The UK has amongst the least energy-efficient housing stock in Europe. After David Cameron’s government dialled back support for insulation improvements about a decade ago, rates of installation collapsed, and we’ve subsequently made very little progress on it.

The energy efficiency of buildings is summarised in the form of energy performance certificates (EPCs) which are required when a home is built, rented or sold. The scale runs from A to G. (Chart shows distribution of EPC ratings for dwellings in England and Wales, April to June 2022).

The EPC rating system isn't perfect, for example it allows the addition of solar PV panels to boost the rating substantially, even in a building with poor heating efficiency. But it still provides some indication.

Getting an A on your EPC is incredibly difficult, but a Passivhaus (pictured below), for example, can achieve that.

On the other hand, older properties without insulation and with expensive fuels have a higher likelihood of being in band G. Now that energy costs have shot up, this has become a financial issue as well as a climate one.

The website Carbon Brief estimated in August that homes rated F or G faced annual bills up to £2,000 higher than those rated C or above, and that UK energy bills would have been about £13 billion lower – equivalent to £220 per household – if governments had not “cut the green crap” as Cameron described it in 2013.

The UK government is being slowly dragged back towards the ‘green crap’ by our Net Zero target. From 2025, all newly rented properties in England and Wales will need to have an EPC rating of C or above. The UK government’s Net Zero strategy says that it intends that “up to 70% of the English housing stock should be EPC band C or above by 2035”.

And there is talk of mortgage lenders starting to be drafted in to help. In 2020, the department for Business, Energy and Industry Strategy (BEIS) proposed that mortgage lenders be required to disclose the EPCs of their property portfolios, with a voluntary target that the average should be at least EPC band C by 2030, to be made mandatory if insufficient progress was made. The goal is to make energy-inefficient properties less attractive to lenders, who would then charge more for them, encouraging people to insulate.

The proposals were then consulted on and faced quite a lot of resistance, from the Lib Dems, and from UK Finance – the body representing the UK finance industry – who argued that it could lead to a “two-tier market”, pushing some homeowners into negative equity if they could not afford insulation improvements.

No legislation has yet been passed.

Drawing of open side of house designed to Passivhaus standards
Side section drawing of an energy-efficient Passivhouse. Image from Michka B on Wikipedia.

Corporate lending and ethical mortgage lenders

The amount banks lend to individuals is often dwarfed by the amount they lend to companies. Since 2008, financial institutions have been required to publicly disclose information on the risks they are taking on their capital, including the sectors they are lending to.

Ethical Consumer set out to rate banks and building societies based on how transparent they are with regards to their commercial lending. We also specifically wanted to know about ethical policies regulating their corporate lending.

Unsurprisingly perhaps, the dirtier a bank’s dealings were, the harder it was to find information on its commercial lending. For example J.P. Morgan, parent company of Chase Bank, the world’s largest financier of fossil fuel extraction, had next to no lending disclosure and extremely limited ethical policies. At the other end of the scale, the top scoring companies in our guide dutifully disclosed their lending and had exemplary ethical policies.

Banks’ corporate lending practices essentially shape our future.

In order to keep global warming under 1.5°C, companies need to drastically reduce their carbon emissions. Yet, since the 2015 Paris agreement the worst 12 banks – of which two, J. P. Morgan and Barclays appear in our guides – poured US $4.6 trillion into the fossil fuel industry.  Both of the companies lost a mark under our Climate Change category.

And, at a time when nuclear war is a frighteningly realistic threat, the latest Don’t Bank on the Bomb report found that between January 2019 and July 2021 financial institutions had provided US$685 billion to the top 25 nuclear weapons producers. Ten of these finance companies appear in our guides and thereby lost a mark in the Arms & Military Supply rating. Our separate feature article on banks and arms has more information on which banks are funding weapons.

Does your bank engage you on important topics?

We looked into how diligently lenders engaged with their borrowers in a joint effort to reduce carbon emissions. What we wanted to see was banks/building societies reaching out in a meaningful way towards their borrowers.

These days, most lenders will have tips on their website for clients to make their homes more energy efficient. Unsurprisingly though, the more a lender had to offer and the more 'real' their products were, the more engagement we found.

For example, Ecology Building Society involved its membership in shaping its 2030 Strategy which sets out the Society’s ambitions for a sustainable future. The Co-operative Bank has had a customer-led ethical policy for decades which prevents the bank from being involved in particularly damaging projects.

Additional research for this guide by Josie Wexler

Company behind the brand

NatWest received a £45 billion bailout in 2008 and was majority owned by the UK government from then until March 2022 when a portion of the shares were sold, leaving the government with a 48.1% stake. NatWest also owns the Royal Bank of Scotland, Ulster Bank and Coutts.

NatWest has investments in a multitude of problematic sectors. A 2021 report from Rainforest Action Network ranked it as the 45th highest global financier of fossil fuels, spending US$14 billion between 2016 and 2021. The 2021 ‘Don’t Bank on the Bomb’ report reported that it had invested US$3 billion in nuclear weapons manufacturers in 2020-2021.

In December 2021, NatWest pleaded guilty to three counts of money laundering, which concerned a jewellers which deposited £365 million between 2012 and 2016, including £264 million cash in black bin bags – the quantity of notes was so large it failed to fit in the bank’s vaults.

Want to know more?

If you want to find out detailed information about a company and more about its ethical rating, then click on a brand name in the Score table. 

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