A series of new reports published today set out the actions needed to ensure mortgage lending can support the EU’s climate and building renovation goals.
The reports – published under the EU-funded ‘Energy Efficient Mortgages Action Plan’ (EeMAP) Initiative – include a paper by WorldGBC’s European Regional Network (ERN) on how energy efficient mortgages could work in terms of the underlying building performance assessment, and how they can support mortgage lenders and borrowers.
In Creating an Energy Efficient Mortgage for Europe – A Review of Building Performance Indicators that Impact Mortgage Credit Risk, the ERN suggests that Energy Performance Certificates (EPCs) – which are required for both buildings that are built, sold or rented – could help underpin a European energy efficiency mortgage and improve mortgage affordability calculations.
Research from the UK provides strong evidence for linking EPCs to borrowers’ household expenditure in mortgage affordability calculations, justifying around £4,000 of additional borrowing on a standard energy renovation. However, as a harmonised EPC across Europe does not exist and efforts to establish one have so far failed, the ERN’s report argues that a framework combining EPCs with other indicators – blending performance calculation, measurement and statistical analysis, should be explored further as the basis for green mortgages.
The other reports examine current market practices within the areas of green finance, property valuation and the impact of energy efficiency on risk, as well as a white paper which builds upon these research reports.
James Drinkwater, Director, Europe Regional Network, said: “The research released today represents the first time that the worlds of banking, valuation and green building have been placed side by side, to help us understand how we leverage the enormous power of mortgage banks to hit Europe’s climate and building renovation targets. There is no better private financial instrument to embed energy efficiency into than the mortgage; the most widely known and cheapest form of finance for homeowners.”
The EeMAP Initiative – led by the European Mortgage Federation-European Covered Bond Council, Ca’ Foscari University of Venice, RICS, the Europe Regional Network of the WorldGBC, E.ON and SAFE Goethe University Frankfurt – was backed with EU funding earlier this year. It aims to create an energy efficient mortgage through which homebuyers across the EU could be offered better interest rates or additional capital in return for purchasing more energy efficient homes or committing to energy saving renovation work. The cornerstone of the initiative is the belief that energy efficiency has a risk mitigation effect for banks as a result of its impact on a borrower’s ability to service their loan and on the value of the property; something a 2018 EeMAP pilot phase aims to prove.
It is believed that energy efficient mortgages could play a central role in Europe’s new strategy for sustainable finance, with the European Commission expected to publish further details on plans to integrate sustainability into finance policy later this year.
Luciano Chiarelli, Head of Group Secured Funding at Unicredit, one of the banks participating in the initiative, said: “EeMAP has the potential to change consumer behaviour and encourage energy efficiency investment in buildings via mortgage finance. In this way, the mortgage market could be a driver of the improvement of the quality of the EU’s building stock, opening new market opportunities, stimulating best practices and making banks’ portfolios more resilient; that is why we support the development of the EeMAP initiative.”
Marco Marijewycz, EeMAP Partner & E.ON, said: “Improving our customers’ lives by helping them to reduce their energy costs through smarter and more efficient energy solutions is at the heart of E.ON’s business. Affordable finance is key to unlocking the potential of these solutions at scale and we believe energy efficient mortgages could offer customers a simple, understandable solution. The EeMAP pilot phase is a great opportunity to test this belief and today’s publication is a clear signal that many building blocks are already in place.”
What is a green mortgage? Read our handy Q&A.
