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Energy efficient Mortgages Action Plan

Periodic Reporting for period 2 - EeMAP (Energy efficient Mortgages Action Plan)

Reporting period: 2018-05-01 to 2019-04-30

A 40% cut in greenhouse gas emissions and around €180 billion of additional investments a year are needed to meet the EU's 2030 targets climate neutrality by 2050, through a fair transition encompassing all sectors of the economy. The financial sector has the potential to play a game-changing role by supporting sustainable growth and mobilizing private capital for green investments. 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.The Project also aims to safeguard financial stability by facilitating standardised energy efficient data reporting meanwhile boosting SMEs active in the construction/ retrofitting industry and also generate social and environmental benefits.EeMAP–Energy efficient Mortgages Action Plan aims to create a standardised “energy efficient mortgage”, providing owners with the incentives to improve the energy efficiency of their homes or commercial 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) reflect the reduced credit risk of these loans.
The second year of the Project was dedicated to the EEMI Pilot Scheme. From May 2018 to April 2019, work was carried out to identify initial recommendations for energy performance indicators to underpin the energy efficient mortgage product. The Consortium moreover reviewed the state of play and the evidence base of the potential value impact of energy efficiency which informed the development of valuation checklist. Subsequent outcomes guided the Pilot Scheme and the development of energy efficiency mortgage products. The pilot scheme kicked off in July 2018 with the primary role to test the implementation of an energy efficient mortgage product, based on the framework developed in consultation with lending institutions and market stakeholders. It also aims to (i) identify pressure points, bottlenecks and gaps to be addressed prior to an anticipated roll-out of an energy efficient mortgage product in the future and (ii) assess and prioritise, in close contact with the Advisory Council and other relevant stakeholders, potential market interventions to overcome the obstacles to market development identified.Over the summer of 2018, Pilot Scheme lending institutions worked in subgroups to identify market barriers and enablers. Several conference calls and email exchanges took place over a 3-month period to which the EeDaPP Consortium and supporting organisations also participated as observers. The obstacles to and potential enablers of market development subsequently identified by the subgroups were presented at an EEM Initiative Stakeholder Meeting at the end of September 2018 in Venice.The findings of the Pilot Scheme subgroups and the momentum created by the close dialogue between market stakeholders and the Advisory Council paved the way in December 2018 for the publication of a definition of an energy efficient mortgage. This definition was the result of extensive cross-sectoral, market consultation and subsequent agreement of the lending institutions piloting the energy efficient mortgage framework and of the EEM Advisory Council and marked an important milestone in the EEM Initiative.
The EeMAP Consortium not only delivered on its commitments, but also went far beyond these to achieve the following: •Pilot Phase consisting of 48 Banks and 33 supporting organisations.
• Advisory Council of 17 national, European and International authorities.• National market hubs (BE,DK,DE,ES,FI,IT,NO,UK) •An EEM definition
•“Cumulative Investments made by European stakeholders in sustainable energy” in EUR/year:The figure in the GA was intended as a projection for a period of 5 years after conclusion of the Project. The following outcomes give a clear sense of potential:-At the end of the Project, 48 lending institutions had joined the EeMAP pilot scheme, representing 55% of mortgages outstanding in the European Union, equal to 25% of EU GDP.-There are currently 18 existing mortgage products and 11 other loan products which comply with the definition. -One of the 48 lending institutions, Berlin Hyp issued €489m of new loans for green buildings after February 2018 which comply with the EEM definition.-In June 2019, PKO Bank Hipoteczny became the first bank to issue green covered bond against the EEM definition.-In October 2018, E.ON and BNP Paribas Personal Finance UK announced a collaboration under EeMAP to bring energy efficient mortgages to the UK property market.
The EeMAP Consortium calculated that based on an assumption that up to 35k houses can benefit from an energy efficient mortgage, and assuming a conservative energy savings rate of 15%, issuing 35k EEMs a year could achieve savings of 88GWh per annum. After the launch of EeDaPP, the working assumption was that half of these savings would be delivered through EeMAP and half through EeDaPP.
The EEMI reaches out more than 180 individuals who are directly involved in the activities of the Projects. The EEMI also has a wider database of in excess of 500 interested stakeholders. Beyond these, a much larger network of market stakeholders are reached indirectly through the EeMAP Consortium members, as well as through the EEMI national market hubs.
The framework for the measurement of EE improvement is expected that this framework will serve as the minimum benchmark for lending institutions in their EEM lending activities. Significantly, the framework informed the EEM definition agreed in November 2018, which in turn helped to inform the work of the European Commission’s Technical Expert Group on Sustainable Finance. Specifically, the 30% energy improvement threshold in the definition is now reflected in the section of the draft Taxonomy addressing real estate and construction, as opposed to the original 50% figure.
•“The conditions and framework required for valuers to take account of EE features in valuations, including instructions from lenders”:The EEMI Valuation Checklist devised by RICS represents a significant step forward in integrating energy efficiency in a consistent and robust way in property valuations. The Checklist has been widely disseminated to RICS valuers and lending institutions and RICS has also developed training material to support its use.
•“The correlation between EE improvements and lower probability of default of borrowers.”:The intention of the EeMAP consortium to conduct this research drew the attention of the European Commission in the context of its Action Plan on Sustainable Finance in which it committed to explore the feasibility of a potential calibration of capital requirements of banks taking account of this correlation as part of the Capital Requirement Regulation.
Policy Impacts: in addition to the policy impacts highlighted above, the EEMI is at the heart of discussions on how to ensure the Mortgage Credit Directive can support the sustainable finance agenda.