Mortgages as a gateway to sustainable living
One of the primary reasons for Belgian consumers to switch a bank is because of a mortgage. Needless to say how essential mortgages are for banks in the overall service offering. On the other end, mortgages are vital for most consumers to access the housing market to buy their own property.
20% of CO2 emissions are currently coming from residential buildings. So mortgages have a pivotal role to play in stimulating more sustainable living, as we learned during The Banking Scene Afterwork on June 10, with Elisabeth Minjauw, President of the European Mortgage Federation and Programme Director Sustainability and Compliant Credits at BNP Paribas Fortis.
“It’s true that today when a person wants to buy a home, they come to the bank for advice”, Elisabeth said. “We see it our duty to help customers and inform them about the goals we have to reach for 2030 and 2050 because people today don’t always realise to which extent they will also be affected by those goals.”
An equally important conclusion from this session is that banks cannot make the shift to sustainable living alone. It requires a well-orchestrated collaboration with all stakeholders involved.
What is at stake for customers?
Studies have shown that houses with a better EPC (Energy Performance Certificate) will retain their value much longer. Elisabeth proved this with a study of KUL in Belgium that concluded that there was “a difference in the value of 10,6% between houses with good energy performance and homes with a bad energy performance”.
This gap will grow more in the future as governments will take more measures to increase the energy performance of houses. Elisabeth: “We had the roof isolation norm in Flanders that obliged all the house owners who want to rent their house to have this roof isolation, else they couldn’t rent it out.” This kind of measures directly affected the value of many houses in Flanders.
She explained that today house owners need to provide an EPC at the moment of sale or rent, and in case of a bad score, the new homeowner will need to take initiatives to improve this. In the future, every property will be impacted, whether there is a transaction or not.
What is at stake for banks?
The EBA and national banks demand mandatory reporting on the energy efficiency of a bank’s mortgage portfolio. These data form a snapshot of today’s situation, the starting point for a better future.
Elisabeth: “They are very well aware of the challenges ahead. And even though we’re only 2021 and 2050 might seem far, we do keep the mortgages quite long in our books. So, the first concern for the regulators is how the value of those mortgages will evolve. After all: the stricter they will be in regulating the real estate market, the bigger the impact will be on banks’ value of their credit portfolio. They want banks to take this into account when they decide to accept a mortgage, when they do their risk analysis, and when they look at their mortgages’ value.”
Macroprudential measures can be expected sooner than later, with a first example in Hungary, where the national bank submitted a program to allow banks to have a reduction on capital requirements if they have energy-efficient mortgages.
The Energy Efficient Mortgages Initiative
The Energy Efficient Mortgages Initiative is a global, market-led initiative with the aim of mobilising capital markets and implementing ESG best practices in the financial sector in support of the objectives of the EU Green Deal and Renovation Wave Strategy.
It was launched back in 2017 with EU funding to see how banks can play a role to enable a green transition and stimulate energy-efficient renovations, whether that is for residential or non-residential real estate. As the President of the European Mortgages Federation, Elisabeth led the foundations for this initiative.
They assisted the European Commission in the taxonomy of green mortgages and helped to define the meaning of concepts like ‘green activity’, ‘green mortgage’, ‘zero-emission buildings’ etc.
Elisabeth: “The Energy Efficient Mortgages Initiative guided banks towards a harmonised European standpoint, allowing us to speak with one voice towards the regulator, the EBA and the European Commission. We now regrouped it in the Energy Efficient Mortgage Label, which has an advisory council that consists of the European Banking Authority, the European Commission, some regulators, some local regulators, the European Investment Bank, etc.”
They also researched and found a correlation between the energy efficiency of a house and the reimbursement of loans. In other words: it is not only beneficial for a bank’s portfolio value to take measures for greener mortgages, but it also reduces the risk of non-performing loans.
How banks “green up” their mortgages
Top of mind, most people think of conditional pricing of one’s mortgage: the greener the house, the better the interest. The lower risk for the bank and a slower decrease in the value of energy-efficient houses means that a better interest rate should not affect the bank’s results.
Other banks take it one step further and assist the customer in all the administration to renovate their houses. The bank will list the possible subsidies or even apply for them in the customer’s name, removing the friction to spend his time on the renovation instead of bureaucracy.
The one-stop-shop to more energy-efficient housing is a third interesting proactive approach, mainly found in Ireland. Elisabeth: “If you go for a green mortgage, and you want to improve the energy efficiency of your house, you get a complete full-fledged service. They have partnerships to help you in auditing the energy efficiency of your house to determine what type of work needs to be done and what needs to be done first, to look for constructors that can execute the works. Afterwards, they will evaluate what it brought to you in energy efficiency and in value of your house.”
Do we risk more inequality in society, as more expensive houses take all the benefits? Elisabeth acknowledged that is a worry, but governments have social initiatives to avoid this kind of discrimination at different levels, such as social credit institutions with special conditions for less fortunate consumers.
With governments stimulating all kinds of initiatives for a healthier society, banks contribute in the way they can. Mortgages hold a key in stimulating consumers to a greener future, as these mortgages directly impact consumers in their wallet.
I learned that this idea of green mortgages has, in fact, nothing to do with greenwashing.
After all: the way banks deal with their mortgages and create awareness on the direct impact between housing and the Green Deal immediately affects a bank’s future results.
Would you like to join our next sustainability session? Mark July 1th in your agenda, when we invite Joachim Aelvoet, Country Director Products and Solutions, ABN AMRO Belgium.