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Energy efficient Mortgages Action Plan

Periodic Reporting for period 1 - EeMAP (Energy efficient Mortgages Action Plan)

Reporting period: 2017-05-01 to 2018-04-30

Interest in energy efficiency finance has increased in recent years, driven largely by the successful conclusion of COP21 and the ambitious efforts being undertaken at EU level as a result. The EU has set itself an overall 20% energy savings target by 2020 and a 30% target by 2030. It is widely anticipated that around €180 billion of additional investments a year is needed to reach the EU's 2030 energy efficiency saving targets agreed during COP21. While the amount of public funds available for energy efficiency has been increased, there is a need to boost private energy efficient investments, through standardised energy efficient mortgage financing, in order to help deliver on the EU energy targets (Figure 1).

Boosting private energy investments provides an opportunity to stimulate the economy in general and the mortgage market and the construction industry in particular. Indeed, considering that the EU’s building stock is responsible for 40% of the EU’s total energy use, and that the value of the European mortgage market is equal to 53 % of EU’s GDP, there is huge potential to unlock the benefits of mortgage financing to support energy efficiency. Bridging these two worlds, has the potential to deliver an effective way to tackle the challenges arising from climate change.

By targeting energy efficient building investments specifically, the Project also has the potential help safeguard financial stability by facilitating standardised energy efficient data reporting meanwhile boosting SMEs active in the construction/ retrofitting industry, which currently generates accounts for 18 million direct jobs. Furthermore, improving the energy efficiency performance of buildings can also generate social and environmental benefits (Figure 2).

EeMAP – Energy efficient Mortgages Action Plan aims to create a standardised “energy efficient mortgage”, providing building owners with the incentives to improve the energy efficiency of their homes or business buildings, or to acquire an already energy efficient property through preferential financing conditions linked to the mortgage. The incentives the Energy Efficient Mortgage will offer borrowers (e.g. reduced interest rates and/or increased loan amount, higher loan-to-value) reflecting the reduced credit risk of these loans (Figure 3).
From May to October 2017, the EeMAP Consortium investigated the current practices in relation to finance, energy efficiency indicators, property valuation and the impact of energy efficiency on risk management in the context of the private bank financing of energy efficiency in the EU’s building stock. The comprehensive research findings are detailed in four technical reports and summarised in an EeMAP White Paper on Market Best Practices.

Alongside the market analyses undertaken, a comprehensive customer research exercise was conducted across Germany, Italy, Sweden and the United Kingdom to map and understand customer appetite for a standardised Energy Efficient Mortgages product. The Customer Research Insights found a positive customer reaction to the concept of an energy efficient mortgage and national variations amongst customer preferred product features.

Building on these findings, and feeding into the preparatory efforts for the Pilot Scheme Framework, comprehensive work was undertaken to identify initial recommendations for energy performance indicators to underpin the energy efficient mortgage product and to explore what a Building Energy Passport scheme could look like. The Consortium moreover began reviewing the state of play and the evidence base of the potential value impact of energy efficiency to identify the necessary pre-requisites for the assessment of “green value” and its corollary of “brown discounts”.

In parallel, the EeMAP Consortium designed an Energy Efficient Mortgage Framework, which consists of three high-level sets of guidelines on i) Implementation Guidelines for Lending Institutions (Figure 4), ii) Building Performance Assessment Criteria and iii) Valuation and Energy Efficiency Checklist, and which will underpin the Project’s Pilot Scheme. The framework is intended to be valid for new and existing residential (single family & multi-family) and commercial properties, facilitating successful implementation of the Energy Efficient Mortgage’s concept within banks’ existing internal procedures whilst leaving room for specific national market characteristics and legal requirements to be accommodated. It is the result of extensive consultation of major stakeholders which includes valuable feedback gathered via 10 Technical Committees meetings, 2 ad-hoc surveys, 1 on-line market consultation, 97 Face2Face meetings/telco, 4 webinars, 9 National Workshops, 4 events.

Thanks to the communication and dissemination efforts, the EeMAP initiative has received attention in both national and international press and from relevant authorities with the project being referenced in the European Commission’s “Action Plan: Financing Sustainable Growth”, the “Impact Assessment Accompanying the Proposal for a Directive of the European Parliament and the Council on the issue of covered bonds and covered bond public supervision” in March 2018 and within a report commissioned by the French government “Pour une stratégie française de la finance verte” in December 2017. The EeMAP Consortium has moreover been invited to present the Project at several high-profile events on climate issues.
The Energy Efficient Mortgages Action Plan represents the first time a group of major banks and mortgage lenders, as well as data providers, companies and organisations from the building and energy industries and the valuation profession have proactively come together to discuss private financing of energy efficiency.

Following on from the work performed in the first year of the project, efforts will be undertaken to ensure continuing market support and a successful roll out of the Pilot Scheme and the underlying Energy Efficient Mortgages Framework. At the time of the official launch of the Pilot Scheme, 37 banks from across the EU and 23 Supporting Organisation had signed up to participate in the Pilot (Figure 5).

With a view to adjusting and improving the Pilot Scheme Framework, the lessons learned from testing the Framework in an operational environment will feed back into a review process of the Framework in order to improve and strengthen it. The Pilot Scheme will also involve the collection and analysis of loan data over time to begin substantiating the correlation between the improved energy efficiency of a building and the subsequent lower probability of default of the borrower and also for the purpose of helping valuers to assess the ‘green value’ of a property.

EeMAP has the long-term potential to accelerate investments in energy efficiency in residential and commercial buildings across Europe. It is estimated that issuing 17,500 energy efficient mortgages a year could achieve savings of 44 GWh per annum. EeMAP’s potential impact will be reinforced if the on-going EeDaPP project - Energy efficiency Data Protocol and Portal - succeeds in addressing the current lack of standardisation in terms of datasets by delivering a framework for standardisation of technical and financial data gathering, with the aim of complementing the EeMAP financing mechanism.
Figure 1 Banks’ game changing role
Figure 4 The Energy Efficient Mortgage Process
Figure 5 Pilot Scheme Organisations
Figure 3 Incentive chain
Figure 2 Specific benefits from energy efficiency in household