26 OCT 2017
Energy efficient mortgages could play a central role in Europe’s new strategy for sustainable finance, states a White Paper published today under the EU funded ‘Energy Efficient Mortgages Action Plan’ (EeMAP) Initiative - which sets out key recommendations towards the creation of an energy efficient mortgage product for Europe.
With further details on the EU’s plans to integrate sustainability considerations into financial policy expected later this year, the EeMAP White Paper sets out the technical actions needed to ensure mortgage lending can support the EU’s climate and building renovation goals. It also puts forward technical recommendations in order to begin collecting energy efficiency loan data to ensure financial regulators recognise the potential risk mitigation of home energy efficiency. The idea is that lower risk on the balance sheet of banks should qualify for lower capital requirements, delivering a strong incentive for banks to enter the market.
The recommendations in the White Paper build on four EeMAP research reports also published today, which show how energy efficient mortgages could work by examining current market practices within the areas of green finance, building performance indicators, property valuation and the impact of energy efficiency on risk.
The reports aim to demonstrate the feasibility and benefits of banks financing energy efficiency improvements of the EU’s building stock, which is responsible for over a third of the EU’s carbon emissions. As mortgages account for around a third of the total assets of the European banking sector - equivalent to half of the EU GDP (EUR 7 trillion at the end 2016) – banks can play a leadership role in the EU's ambitious climate and energy goals if mortgage lending recognises and rewards better energy performance.
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 World Green Building Council, 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.
The pilot phase will test the energy efficient mortgage product and its broader framework, and data will be collected and analysed. The goal of this endeavour is to illustrate how the current capital framework could take into account the potential risk mitigation effect of energy efficiency.
For more information about the EeMAP Initiative, please visit the EeMAP website: www.energyefficientmortgages.eu. In parallel to the EeMAP Initiative, the EU is examining how to integrate sustainability considerations into its financial policy framework in order to mobilise finance for sustainable growth. A High-Level Expert Group on Sustainable Finance is expected to publish recommendations later this year.
* This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 746205. The sole responsibility for the content of this material lies with the authors. It does not necessarily represent the views of the European Union, and neither EASME nor the European Commission are responsible for any use of this material.