EU homebuyers could be offered better borrowing rates on mortgages in return for buying more energy efficient homes or committing to implement energy saving work in properties.
The European Energy Efficiency Mortgage initiative has been launched by a consortium, led by European mortgage industry body, the European Mortgage Federation – European Covered Bond Council (EMF-ECBC). It aims to create a standardised energy efficient mortgage, based on preferential interest rates for energy efficient homes and additional funds for retrofitting homes at the time of purchase.
A group of major banks and mortgage lenders, as well as businesses and organisations from the building and energy industries, has come together to address the concept of energy efficient mortgages. Project partners are the Ca’Foscari University of Venice, RICS, European Regional Network of Green Building Councils, energy company E.ON, and SAFE Goethe University Frankfurt.
Creating a private bank financing mechanism to encourage energy efficient improvement of homes is a key means of helping the EU to meet its energy saving target of 20% by 2020, and deliver on the ambition of the Paris Agreement, which was reached at the COP21 United Nations climate conference last December.
The mortgage initiative will explore the link between energy efficiency and the borrower’s reduced probability of default, and the increase in value of energy efficient homes. For banks and investors, this could lead to loans that represent a lower risk on the balance sheet, and could therefore qualify for a better capital treatment. It could also ensure that banks are able to recognise energy efficient assets in their risk profiling, which would begin to help the market to price-in the added value of energy efficient real estate.