The World Green Building Council has convinced Europe’s banks to offer preferential mortgage rates for better-performing homes – a scheme piloting this June. World GBC technical lead Stephen Richardson hopes they’ll be a gamechanger for Europe’s €7 trillion mortgage market
Isn’t this just banks jumping on the sustainability bandwagon to find a financial product to sell?
That’s a cynical view you have! No, I think banks are recognising that about a third of their assets are locked into property and that as regulation gets tighter, bad energy performance is a risk. You’re now hearing terms like ‘green value’ – the price premium someone’s willing to pay for a sustainable property; and ‘brown discount’ – the reduction on a property’s market value due to bad performance. The EeMAP (Energy Efficiency Mortgage Action Plan) aims to leverage finance available to buy better performing buildings.
Will the mortgages incentivise the market to pay a premium for energy efficient homes?
The reality is that energy efficiency is not at the top of the list when buying somewhere; it’s a more emotional than hard-headed decision, involving many factors. But attaching preferential interest rates to sustainable properties builds a more compelling case for buying an energy efficient one. Regulation is a driver- the government’s consulting on its Clean Growth Strategy and this will support the green mortgage initiative.
But what about mortgages on the existing housing stock?
The €100 billion annual shortfall in investment for building energy efficiency takes account of Europe’s poorly performing existing stock. And this project is about old homes as well as new. The Green Deal failed because there was the question of who pays the loan; a green mortgage deals with this. Re-mortgaging and upgrading not only increases a property’s value, it makes it more attractive to buyers, who’ll pay less interest on a loan to buy it. Only 1% of EU stock is upgraded annually – we need that to triple to meet climate change targets.
What was the World GBC’s involvement?
We were at the heart of it! With the Build Upon Strategy we supported governments to produce nation renovation strategies as part of the EU Energy Performance Buildings Directive. Knowing that investor finance was crucial, we brought in the European Mortgage Federation, RICS for valuation expertise and E.ON for consumer intelligence, among other partners. This consortium helped push the Mortgage Action Plan.
So what kind of preferential rate?
We can’t stipulate that – we’re not rate setters. The banks have to evaluate that through risk metrics. We’re hoping for a tiered approach like the Netherlands which is a trailblazer in green mortgages. An EPC rating of ‘A’ gets a better rate than ‘C’. It’s all about incentivisation.