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The Energy-Efficient Mortgages Initiative promotes a common understanding of what makes an energy-efficient mortgage, as opposed to a conventional one. It is also mobilising stakeholders, developing tools and championing the changes needed to make mortgages promoting energy efficiency available on a large scale and thereby leverage investment in the greening of the EU’s building stock.
Two EU-funded projects jointly comprise the Initiative. One of these – named Energy-Efficient Mortgages Action Plan (EeMAP) – fostered consensus on the concept and generated momentum for its deployment.
‘Without a common definition, we cannot build a common awareness, a common attitude, and a common market for this type of loan,’ says project coordinator Luca Bertalot of the European Mortgage Federation – European Covered Bond Council.
EeMAP, which ended in April 2019, has clarified the concept. It has developed a definition that sets out criteria for the properties involved – both for the performance to be achieved by newly constructed buildings and for the improvements expected in the case of renovations. It has also launched a pilot scheme that already involves 65 banks, which collectively hold more than half of the mortgages outstanding in the EU.
The EU-funded sister project EeDAPP, which ended in August 2020, has contributed a data protocol and portal to the drive. ‘Now that we have a definition of an energy-efficient mortgage, we have to help banks develop an IT protocol that will allow them to track what is green in their portfolio,’ Bertalot notes.
Set the scene ...
EeDAPP has also looked into the implications of mortgaged buildings’ energy performance for the credit risk incurred by banks. The Initiative is based on the assumption that energy-efficient buildings command a higher value and are less costly to run, which in turn helps to preserve homeowners’ financial stability.
‘We hope that EeDAPP will be able to provide at least 1 million data points for a good correlation analysis,’ Bertalot adds.Energy-efficient mortgages are a win-win-win proposition, he emphasises: citizens, banks and society as a whole all stand to gain. However, a few more building blocks are needed to turn them into a cornerstone of Europe’s strategy for a carbon-neutral future.
First and foremost, banks must be able to obtain information on the energy performance of existing buildings, and they must be able to access it quickly. ‘So we really invite national authorities, regions and provinces to help us obtain complete datasets on energy-performance certification that banks can access freely, without delay, and with the assurance that the information complies with the rules on data protection,’ he underlines.
The Initiative is also proposing a label that would be awarded to individual banks to certify a specific volume of lending activity corresponding to the definition developed in EeMAP. The label is envisaged as an annual certification process based on evolving criteria, Bertalot explains.
‘We know that the energy efficiency discussion will be different in five years’ time,’ he says. ‘The market should always strive to move towards the best benchmark for consumers, for banks and for investors.’
A new EU-funded project, EeMMIP, for Energy Efficient Mortgages Market Implementation Plan, which started in September 2020, will focus specifically on the proposed label.
... and bring it on
Buildings account for some 40 % of the EU’s energy consumption and CO2 emissions. Mortgages are a gateway to green investments in this area, as opportunities to upgrade a property typically arise when it changes hands, Bertalot points out.
If these opportunities are missed, the next window may not open for another 25 years or so. The climate emergency cannot wait that long – massive change is needed within a decade and a half, according to Bertalot.
To help build momentum now, mortgages that reward investments in energy efficiency must be attractive and convenient. As interest rates are already very low, banks have little leeway to offer even better deals in this respect, but they can offer customers other incentives, such as preferential rates negotiated with utilities or support in finding builders to handle their renovation work, Bertalot explains.
Given the extent of the investment needed to make improvements across the entire building stock, there has to be a market effort alongside a public-sector effort – the taxpayer cannot foot the bill alone, Bertalot observes.
Rolling out energy-efficient mortgages on a large scale would direct very substantial streams of cash flow to energy efficiency and to the industries advancing it, boosting their health and enabling them to invest in the development of new products, he points out. And it would trigger the new, green industrial revolution that Europe needs.
‘We can pay for it,’ Bertalot concludes. ‘The banks, I think, are ready to do their homework and provide the funds. That’s what we do and want to do. But it can’t be done without the required instruments and comprehensive political support.’