Going green doesn’t mean great funding options

As more investors look toward building eco friendly properties, they are discovering the lending market for the area is quite small.

Climate change is a reality we face in the headlines each day. From melting ice to monster storms that seemed impossible a century ago, virtually everyone has felt its effects. In a journey to slow the progress of climate change, world leaders issue mandates on a regular basis, and most are convinced that eco development is the way to go in the future of the property market. With ideas like adding solar panels for energy and using a variety of materials in construction, the green property market gets a knowledge boost each day. Getting funding to develop those properties, though, is a bit harder than you might imagine.

When lenders begin to consider funding a project, they look carefully at the materials used to create the structure. In the case of many green properties, because the construction materials may require more maintenance over the life of the loan, lenders shy away from the loan itself, as it may not be a viable investment in a foreclosure situation.

As a result, an increased number of niche-loan sources are popping up on almost a daily basis. Because more and more governments are requiring carbon-neutral property designs, companies like the Co-operative Group, the UK’s largest consumer cooperative, have created green loans and mortgages that are either given only to eco-friendly properties or a portion of the loan goes to fund other environmentally-friendly initiatives in the area.

That market may not stay small for long, though. Andrew Montlake of Cobalt Capital said, "I imagine in the next 12 months pretty much every lender will have some sort of green offering or another. Lenders will need to offer loan rates for energy-efficient home improvements that borrowers will really sit up and look at before these become popular."