Competition heats up for low cost sustainability loans – which bank has the best deal?

New mortgage lending has dropped dramatically but banks are going all out to get homeowners to take out top-up loans for installing heat pumps, insulation, double glazing or solar power.

Westpac today has announced it
will increase its maximum loan size from $10,000 to $40,000 on its sustainability loans which can be used to pay for the above on a zero interest rate over five years.

It has also extended its offer to include EV charging equipment and battery packs for solar panels but won’t allow borrowers to go as far as putting an electric car on the house.

Homeowners who want to do that will have to switch their home loan to ANZ which earlier this month launched a loan offering up to $80,000 at 1 per cent interest for three years.

ANZ Good Energy home loan can be used to buy electric and hybrid vehicles and install EV chargers as well as covering heating, insulation, double glazing, ventilation and rainwater tanks.

Catherine McGrath, chief executive of Westpac New Zealand, said its expanded Westpac Warm Up loan would allow customers to borrow up to $40,000 interest-free to make their home warmer, drier, more sustainable and energy efficient.

It had already lent more than $30 million to 4200 borrowers through this scheme and was now aiming to get that up to $100m.

“As well as supporting customers to live more sustainably, these loans also help with cost of living pressures through the zero interest charged and in many cases reduced energy costs.”

But McGrath said the bank was still working through its position on EVs.

“The challenge with that is that having a depreciating asset against a home loan is something that I’m a bit thoughtful about. So we are just working that through at the moment.”

McGrath said it would not do any loan top-ups that would take a borrower over the 80 per cent loan to value ratio.

The bank didn’t have a timeframe in mind for how long it would take to reach the $100m cap.

“We are just going to see what happens and what the interest is from customers. And if we reach that cap pretty quickly I think that is telling us something really interesting and clearly we do want to be helping our customers drive that transition to sustainability. We will have a look at it when we get to that point.”

McGrath said heat pumps were the primary reason people took out the loans so far but she hoped the lifting of the cap would help it cover a whole range of things.

The five-year loan is designed so all the debt is paid off in that time.

Sustainable agri loans

As well as the home loan top-up Westpac is also piloting new sustainable agribusiness loans with three farmers.

“The reason we want to do it as a pilot is integrity is a really important part of this and getting independent measurement is an important part of it. Before we go in we want to see how that works without farming clients.”

The loans require a customer to meet all parts of the Sustainable Agriculture Finance Initiative guidance.

This includes practices to reduce emissions, improve long-term resilience and deliver more sustainable outcomes in terms of water, waste, pollution and ecosystems.

Once farmers commit to meet the guidance, they have two years to achieve that goal and will be supported with discounted loan pricing, McGrath said.

“Agriculture is a key part of New Zealand’s economy and we provide high-quality food and produce to the world. It’s important we take an innovative approach to lending in order to help our customers achieve their sustainability goals, while remaining productive.”

She would not say how much of a discount on their loans the farmers would get if they meet them.

“We are not talking specifically about the commercials at the moment because that is one of the things we are working through.”

The loans are expected to be rolled out more widely next year.

Going net zero

Westpac Group which included the New Zealand arm has also announced today it has signed up to the UN-convened Net-Zero Banking Alliance.

“Whilst I recognise that Westpac Group may have been slightly later to sign up for the net zero banking alliance what we have done is being more specific in how we are doing that and putting more specific targets up front.

“Part of that is about integrity and not just signing to say yup we are in but to actually have a plan in terms of how we are going to help our customers get there and do it in a systemic way.”

Within 18 months of joining she said the bank would set the 2030 targets focusing on the most emission-intensive sectors.

“We have had a look at it from a Westpac NZ perspective and already have some specific client groups we will be working with to help on that transition plan.”

That didn’t mean it would stop lending to certain businesses.

“We will definitely lend to them but we are lending to them specifically to help on that transition.”

“We have all got to recognise it is a transition, it is not a turn from A to B and so working with them on their plans to get themselves into the best possible place and how do we support them with it is a real focus.”

It already excluded lending to certain industries like mining.