Energy efficient Mortgages Action Plan (EeMAP) & Energy efficiency Data Protocol and Portal (EeDaPP)
The Initiative The Energy Efficient Mortgages Initiative is aimed at delivering a standardised European framework and data collection process for energy efficient mortgages, with favourable financing conditions for energy efficient buildings and energy saving renovations. It consists of two parallel projects, the “Energy efficient Mortgages Action Plan” (EeMAP) and the “Energy efficiency Data Protocol and Portal” (EeDaPP), and is funded via the European Commission’s Horizon 2020 Programme. www.energyefficientmortgages.eu December 2018 Energy Efficient Mortgages Initiative 2
Banks can Play a Game Changing Role in Improving Energy Efficiency (EE) …of which In the EU 28 there are… More than 350 million 510 million live under people their own roof This initiative On average 7498 MFIs has huge Private financing each branch and potential! serves 188,109 around 2,700 branches people more than 220 million 247 million dwellings dwellings were built before 2001 December 2018 Energy Efficient Mortgages Initiative 3
Underlying risk parameters impacted by EE Retrofitting impacts positively on property value ensuring wealth conservation & loss mitigation by preventing “brown EE leads to a reduction in the impact of energy costs to income, reducing borrowers‘ probability of default December 2018 Energy Efficient Mortgages Initiative 4
Objective & Underlying Business Case The ultimate objective is a pan-European private bank financing mechanism, based on a standardised approach, to encourage energy efficient improvement by households of the EU’s housing stock by way of financial incentives linked to the mortgage, and in this way support the EU in meeting its energy savings targets. Independent from, but complementary to, public funds or tax incentives. Underlying business case: December 2018 Energy Efficient Mortgages Initiative 5
Bridging Renovation Gap - In Practice EE Renovation After EE Renovation Before EE Renovation Energy efficiency advisor (EEA) to Bank grants advise on: Mortgage 1. Necessary EE SME carries preferential granted renovation out EE interest rate on & EE top- 2. Complementar mortgage based up renovation, y funding Mortgage provided on EE/smart guaranteeing sources directly applicatio performance meter (subsidies) n to SME 𝑈 0 𝑈 Ex post Qualified SME 1 EEA certifies EE Ex ante valuation of selected by bank Valuation of renovations in to carry out EE property property line with EE renovation requirements 6
Incentive Chain Borrower: SME/ Real Economy: - Lower energy bills - SMEs active in the retrofitting of - Energy Efficiency Behaviour buildings and dwellings to become - Lower interest rate on mortgage more energy efficient for energy efficient property - Juncker Plan - Free capital for retrofitting Issuer/Originator: Society: - Access to funding cost advantages - Reduction in energy consumption -Increased loss mitigation capacity - Wealth conservation - Lower capital requirements as a - Reduction in greenhouse gas result of lower PD emissions - Reputational benefits Government: Investor: - Pan European plan to stimulate energy - Diversification of investor portfolio efficient investment in residential property - Allocation of energy efficient - Improvement of existing housing stock investment buckets - Compliance with 1997 Kyoto Protocol – COP21 - Green added value vs brown - Access to quantitative & qualitative database discount on energy efficient mortgages & covered bonds December 2018 Energy Efficient Mortgages Initiative 7
Market Best Practices: White Paper ▪ Overview of current practices in relation to finance , energy efficiency indicators , property valuation and the impact of energy efficiency on risk management ▪ Key recommendations towards the creation of an Energy Efficient Mortgage product for Europe 1. A simple & standardised framework for Energy Efficient Mortgage to help market entry allowing for national heterogeneity, with guidance on the underlying finance mechanism 2. A clear definition of an Energy Efficient Mortgage to enable banks to differentiate between energy efficient and conventional mortgages in their risk management processes 3. Energy efficiency in property valuations. To ensure that energy efficiency is appropriately taken account of in property valuations, banks should be guided on how and what to instruct property valuers in relation to energy performance of buildings 4. Simple and proportionate energy efficiency performance indicators , with flexibility to take account of differences between current national approaches www.energyefficientmortgages.eu The White Paper is available on the energy Efficient Mortgages website: http://eemap.energyefficientmortgages.eu/wp-content/uploads/2018/04/EeMAP-White-Paper.pdf December 2018 Energy Efficient Mortgages Initiative 8
Market Best Practices: Five Technical Reports The research findings are detailed in five Technical Reports Building EE Impact on Performance probability Indicators of default ‘Green’ Finance Consumer Research Mortgage lending Insights valuation www.energyefficientmortgages.eu December 2018 Energy Efficient Mortgages Initiative 9
GDP and Energy Consumption Energy consumption evolution in the EU (current composition) 16,000 1,250,000 14,000 1,200,000 12,000 in EUR bn 1,150,000 10,000 8,000 1,100,000 6,000 1,050,000 4,000 1,000,000 2,000 0 950,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP Energy consumption (RHS) Source: Eurostat December 2018 Energy Efficient Mortgages Initiative 10
Home, ‘Expensive’ Home Housing cost as % of disposable income 80 70 60 50 42 40 30 20 10 0 below 60% median income above 60% median income Source: Eurostat – 2017 EU-SILC survey Around 42% of disposable income of poorer households (below 60% of median income) is spent on housing costs December 2018 Energy Efficient Mortgages Initiative 11
‘Heat or Eat’ Dilemma ▪ 21% of EU population that earn 60% or less than median income in their respective countries, over 18 million people, live in a household which they cannot adequately heat ▪ This issue has different degrees of relevant according to country Source: Eurostat EU-SILC survey 2017 *according to the Survey definition December 2018 Energy Efficient Mortgages Initiative 12
Owners or Tenants Breakdown of tenure status by income group ▪ In EU breakdown of how citizens live is reflected by their income group 100% 9.2 ▪ Poorer part of population in Europe 18.7 90% (around 86 million people earn less than 17.6 80% 60% of their respective Member States’ median income) typically live as tenants 70% 31.1 ▪ These individuals are also more than two 60% times less likely to have a mortgage than the rest of the population 43.5 50% 40% 38.2 30% 20% 29.6 10% 12 0% below 60% median income above 60% median income owner with mortgage owner without mortgage tenant market price tenant reduced price Source: Eurostat – 2016 figures December 2018 Energy Efficient Mortgages Initiative 13
Houses with History EU housing stock age structure 20% before 1945 23% 1945-1970 1971-1990 29% 28% after 1990 Breakdown of age of housing stock according to selected capital cities 80% 70% 60% 50% 40% 30% 20% 10% 0% before 1945 1945-1970 1971-1990 after 1990 December 2018 Energy Efficient Mortgages Initiative 14
Pilot Scheme: To begin Solving the ‘Chicken & Egg’ Dilemma Assets Liabilities EE mortgages EE bonds collateral Covered Bonds • • Securitisation • Investor Demand European European Investmen Investmen t Bank National Promoting Banks: t Fund (EIB) Green Purchase Programs (EIF) December 2018 Energy Efficient Mortgages Initiative 15
Energy Efficient Mortgages Pilot Scheme Under the Energy Efficient Mortgages Pilot scheme , Pilot Scheme Banks have the opportunity to analyse the feasibility and voluntarily implement the Energy Efficient Mortgage Product Framework into existing product lines and processes. On 14 June at the Energy Efficient Mortgages event in Windsor, Pilot Scheme Banks were invited into take part in 7 subgroups to identify the opportunities and risks in various areas (i.e. Origination/retail; risk management; marketing; funding & investor relations; partnerships; IT solutions & Data; development of technical expertise ), taking as the starting point the Energy Efficient Mortgage Product Framework, and highlighting potential operational solutions. For further information: • Press release , 14 June 2018: "The light turns green: Energy Efficient Mortgages Pilot Scheme goes live!“ Energy Efficient Mortgages Pilot Scheme Roadmap for Lending Institutions • • Energy Efficient Mortgages Pilot Scheme Pioneers December 2018 Energy Efficient Mortgages Initiative 16
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