European Mortgage Federation pushes for green mortgages

The European Mortgage Federation (EMF) is developing a pan-European standard for green mortgages, used especially to improve the energy efficiency of homes. Jennifer Johnson, deputy secretary general at the EMF, would like to see Finnish banks determine what the product lifecycle should look like, gather data on green mortgages and consider the potential for strategic partnerships in the market, for example with the energy sector.

“Product, data and partnerships”, Johnson sums up. These are the key ingredients Finnish banks need to consider in order to make green mortgages a reality also in the Finnish market.

Green mortgages are energy efficient mortgages that would be used particularly for the renovation of energy inefficient homes to bring them in line with new energy standards. To qualify for green funding, the renovations would have to improve the property’s energy efficiency by at least 30%. Most new buildings are already energy efficient due to current building codes, so the biggest room for green improvement lies in the financing of renovation building. Buildings are responsible for approximately 40% of the energy consumption and 36% of the total CO2 emissions in the EU.

At the heart of the EMF’s energy efficient mortgage initiative is the assumption that, compared to ‘regular’ mortgages, energy efficiency mitigates banks’ risk: higher energy efficiency equals lower costs of living and improved property value, which in turn increase the borrower’s ability to service their loan. This means that energy efficient mortgages will represent a lower risk on banks’ balance sheets and could, therefore, qualify for a better capital treatment. The challenge remains to acquire data that proves a connection between energy efficiency and credit risk.

Gaps in data

The EMF has invited banks throughout Europe to take part in a pilot project that produces data on whether green mortgages truly carry less credit and asset risk than regular mortgages. So far, 43 banks have already joined the project, representing 50% of the EU’s outstanding mortgage market. The Finnish participants are Nordea, Hypo and OP Financial Group.

“We need data from pilot banks to show that green mortgages really do mitigate risk. We also need it to map what kind of data is available in each country in the first place, and who has the best access to it”, Johnson said during her visit to Finland.

“We also need to learn more about the best ways to market green mortgages to consumers – in your case, specifically in the Finnish market. Banks could consider approaching the energy sector for strategic partnerships in product development and data acquisition”, Johnson adds, listing the next steps the EMF recommends for Finnish banks.

“The first commercialised green mortgages will most likely see daylight in 2019, possibly in the UK or in Italy. Belgium is also quite far in their planning and has eight banks involved in the EMF pilot project.”