The World Green Building Council has issued a call to action during this month’s Green Building Week to fast track the energy efficiency linked mortgage market, after the results came in from a pilot scheme for homeowners in the sector.
The aim of the scheme, which currently has 37 participants including Germany’sDeutsche Hypothekenbankand the UK’s Ecology Building Society, is to demonstrate how easy it is to apply a set of standards proposed under the EeMAP (Energy efficient Mortgages Action Plan), which was launched in June.
At the current renovation rate of only 1 per cent annually, it would take a century to decarbonise the entire European building stock. This is why action is needed to speed this up. Coordinated by the European Mortgage Federation-European Covered Bond Council, the scheme has the potential to transform the multi-billion-euro mortgage business by making green loans cheaper.
EeMAP involves banks and financial institutions representing a combined lending power of over €3 trillion (AUD$4.8 trillion) – equal to around 20 per cent of the EU’s GDP– and has the support of 23 other organisations.
Consumer research discovered a positive customer reaction to energy efficient mortgages, especially in Italy (80 per cent responded that they found these mortgages very/quite appealing), followed by the UK (66 per cent very/quite appealing), with outright rejection of the idea very low
According to E.ON’s business to consumer market manager, Marco Marijewycz, “the single most important reason in all markets for finding the product appealing is the prospect of cutting the cost of the mortgage.” E.ON sees the pilot as an opportunity to find an energy efficient mortgage product formula that is attractive to consumers.
German bank Hypothekenbank, one of the biggest cooperative banks in Germany, which specialises in responsible finance, and the British Ecology Building Society, with 30 years’ experience of lending in support of sustainable building, agree.
The pilot scheme builds on a report published last year by WorldGBC’s Europe Regional Network.
“Europeans are well aware of the risks of not upgrading their old polluting cars, but we still lack accessible finance to help property owners upgrade their old polluting homes,” James Drinkwater, director of the network, said.
Call to action
The World Green Building Council’s Europe network therefore issued a call to action at the start of this Green Building Week (starting on 24 September) to accelerate the growth of the energy efficient mortgage market
Banks, investors, the building sector, energy companies and governments have been called on to pilot the criteria, develop partnerships, and to work with Green Building Councils to understand how policy changes can support the spread of green mortgages.
It also calls for energy efficiency to become part of every mortgage conversation with borrowers; for more training for the workforce to normalise the skills required, and for “building renovation passports” that could be issued to support phased, deep energy renovations of a building.
The passports would improve the availability of data for valuers and lenders, and ensure that any renovation works are planned and implemented in a technically sound manner.
The call to action and the first results are contained in the document Creating an Energy Efficient Mortgage for Europe: Towards a New Market Standard.
The first results of the pilot initiative will be presented at a pilot scheme meeting in Venice as part of Green Building Week on 27 September. However, the recently released document reveals the early lessons learned from German energy company E.ON and from Spanish bank Caja Rural de Navarra.
These show that the criteria can be implemented now without the need for a major change to existing business practices. They also reveal that the mortgage market needs clarity about the level of performance required when setting up energy efficient mortgage products.
The pilot also shows the value of strategic partnerships between banks and businesses in the energy sector and the report goes into great detail into how this can work.
EeMAP has three workstreams addressing the technical, financial and valuation aspects of a European energy efficient mortgage.
To be able to comply with the criteria for the mortgages, buildings would have to satisfy conditions on the energy performance thresholds for joining the scheme, requirements for ongoing performance monitoring to ensure continued compliance, and guarantees on quality assurance regarding any work undertaken to the building to help it meet its performance standard.
The energy performance thresholds proposed could be: an energy performance certificate (EPC) showing nearly zero energy building compliance verified during a site visit, or being 20 per cent better than current regulations, or a 30 per cent improvement for renovations on previous performance. (In many countries there is a problem that EPC data is not easily accessible or in a usable form; sorting this data involves a lot of work.)
Ongoing performance monitoring is needed to ensure that the predicted performance (in the case of new-build) or performance improvement (in the case of renovation) is realised in practice. It could be established with actual consumption figures based on meter readings, or in the case of renovations a revised energy performance certificate.
Quality assurance would be carried out by qualified/accredited professionals, and ensure that nothing had been done to the building to make future improvements more difficult or expensive, also using documentary evidence of the work undertaken.
To ensure wide uptake, the criteria should be simple and based on existing tools and approaches available in most European countries. The minimum requirements would remain under review as the market matures, but be sufficiently ambitious to deliver the kind of performance improvements required to meet the global climate change challenge.
Widening the criteria
The World GBC’s research also shows that there is a strong case to be made for expanding the criteria for energy efficient mortgages to incorporate wider sustainability performance aspects. These are already commonly addressed in green and sustainable bond frameworks. For example, Caja Rural de Navarra issued a €500 million sustainable covered bond this year using this framework, which was significantly oversubscribed.
Wider sustainability performance of buildings can be assessed using voluntary sustainability certification schemes. These schemes are becoming more common in the commercial property sector and several have or will soon have mechanisms to demonstrate compliance with WorldGBC’s Net Zero Carbon commitment.
Financial regulators have the scope to relax capital requirements for energy efficient mortgages, on the basis of their lower risk profile. This concerns the minimum amount of capital that a bank must hold in reserve in relation to the size of its loan portfolio, intended to keep the bank solvent in the event of a crisis and directly related to the risk associated with the banks assets.
A relaxing of these requirements for lower risk energy efficient mortgages would allow banks to do more lending.
According to Ursula Hartenberger, global head of sustainability, Royale Instiution of Chartered Surveyors, “It is essential that valuers and lenders take a wider view beyond energy efficiency and traditional value drivers, looking at more ‘intangible’ aspects such as: the potential impacts of – and on – climate change; configuration and design, including use of materials and concepts increasingly associated with health and ‘wellness’; accessibility and adaptability; building ‘intelligence’ and other ‘costs in use’.
“Access to consistent and comparable building information data, as captured by the proposed building passports, is essential for valuation and property professionals in order to provide banks with robust advice and facilitate informed lending decisions.”
David Thorpe is the author of the Expert Guide To Energy Efficiency in Buildings.