Households will be rewarded with cheaper mortgage rates by improving their home's energy efficiency, under a new green finance initiative set to be unveiled today.

Ahead of the launch of the Green Finance Strategy, the UK Government has announced a £5 million fund to help the financial sector develop environment-oriented home finance products.

So-called 'green mortgages' would give customers discounted mortgage rates once they have upgraded the energy rating of their home.

Currently, there are around 17 million homes in the UK with Energy Performance Certificate ratings in the least efficient categories, D to G.

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Companies will also be offered the chance to win a share of a £10m if they can come up with innovative ways to reduce the cost of retrofitting the UK’s old housing stock to improve energy efficiency.

This could include assembling parts of buildings like pre-fabricated roofs or facades off-site and quickly fitting them to homes, minimising disruption for homeowners.

Currently, homes are responsible for 15 per cent of the UK’s carbon emissions.

Energy and Clean Growth Minister Chris Skidmore said: “To fulfil our world-leading commitment to reach net zero emissions by 2050, we need an overhaul of our housing stock to tackle the disproportionate amount of carbon emissions from buildings.

“By rolling out more green mortgages and reducing the costs of retrofitting older homes we’re encouraging homeowners to improve the efficiency of their homes and save money on their energy bills, helping to ensure everyone has access to a warm and comfortable home.”

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As part of the Green Finance Strategy, funding from the Green Home Finance Innovation Fund (GHFIF) will be awarded to projects that incentivise homeowners to improve the energy efficiency of their properties - for example, by improving cavity wall insulation.

The GHFIF will support the development of products like equity loans and home improvement loans that will help homeowners make upgrades, for example, offering energy efficiency advice, access to trusted installers and preferential mortgage interest rates in exchange for making home energy improvements.

Meanwhile, the £10m Whole House Retrofit competition will help to find viable ways of reducing the cost of retrofitting homes at scale and at affordable rates, to drive down costs for consumers.

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It comes just days after the Government became the first major economy in the world to pass laws committing the UK to net zero emissions by 2050.

Achieving the target will require a huge investment in clean energy generation in order to supply enough green power for mass electric car use and interventions such as switching from gas to hydrogen-based central heating.