Can green mortgages help the European Union reach climate and building targets?

The reports – published through the European Union (EU) funded Energy Efficient Mortgages Action Plan (EeMAP) – draw on papers issued by the WorldGBC’s European Regional Network (ERN) as to how a new mortgage system could incentivise carbon reductions in the built environment.

EeMAP wants to create a European energy efficient mortgage (EEM), whereby a bank or mortgage lender would offer preferential terms to house buyers that are targeting purchases with high environmental standards. Through the EEM, borrowers would receive reduced interest rates and/or an increased loan amount for a house purchase to reflect the reduced credit risk of that offer.

Specifically, the WorldGBC’s ERN suggests that Energy Performance Certificates (EPCs) – which are required for buildings that are built, sold and rented – could act as the framework for a EEM system that creates new financial opportunities for buyers and incentivises the construction industry to target energy efficiency.

The ERN’s director James Drinkwater said: “The research released today represents the first time that the worlds of banking, valuation and green building have been placed side by side, to help us understand how we leverage the enormous power of mortgage banks to hit Europe’s climate and building renovation targets.

“There is no better private financial instrument to embed energy efficiency into than the mortgage; the most widely known and cheapest form of finance for homeowners.”

EPC ratings

Research from the UK Green Building Council (UKGBC) found that linking EPRCs to household expenditure through mortgage affordability calculations could create an extra £4,000 for a buyer to put towards a building with a better energy performance. The UKGBC’s LENDERS green mortgage programme trialled these calculations through a consortium of partners including BRE, Arup and the Energy Saving Trust.

In the EU, buildings account for around 40% of energy use, and it is estimated that €100bn is needed annually in building renovations to meet energy and climate goals. While the EPCs provide a viable framework in the UK, a lack of consistency in the certificates in different member states would require new assessment criteria to be introduced for EEMs, the report notes.

The European Commission has set targets for all new buildings to be nearly zero-energy by 2020, and EPCs should provide information on the energy-efficiency of buildings and list recommended improvements where applicable.

The UKGBC has offered guidance for construction and building firms to decarbonise their operations and supply chains further, through effective embodied carbon measurement. Earlier this year, the WorldGBC claimed that every building, not just new, must be ‘net-zero’ carbon by 2050.

EEMs would provide risk mitigation for banks, and a 2018 EeMAP pilot phase hopes to provide proof for mortgage lenders. The ERN is preparing technical recommendations for the building performance assessment process and will publish a draft EEM recommendation in early 2018. National Green Building Councils will also publish a series of market briefs to incentivise action in their countries.

Matt Mace