Energy efficiency and credit risk: uncovering correlation

By Daniele Vergari, Gianluca Natalini, Stella Fumarola, CRIF


One of the key objectives within the EeDaPP project is to investigate the correlation between energy efficiency and credit risk, measuring how this affects obligor’s credit risk and thus a “green” mortgage portfolio performance.

To this end, CRIF, closely working with University of Venice “Ca’ Foscari” and the other EeDaPP consortium partners, will be preparing the ground for the quantitative analyses. These will focus on the two main components of credit risk and its cost trying to consolidate our previous research evidence:

  • Probability of default: energy efficient borrowers have a better payment behavior and therefore a lower credit risk;
  • Recovery rate: energy efficient properties are more valuable and show greater resilience to economic cycle.

Energy Efficient Mortgage Pilot Scheme

In order to make the study as sound and robust as possible, different market players and stakeholders are involved firstly in the creation of the analysis data pool:

  • Financial institutions provide information about mortgage loan applications (i.e. customer and contract data) and corresponding performance (i.e. the customer failed to pay its obligations);
  • Institutional players, like ENEA or other institutions, where needed, may integrate the banks’ own internal data and evidence with EPC information that may prove to be scarcely available for most financial institutions in the manner it is required by the analysis (e.g. historical time series);
  • Consortium member CRIF is able to further integrate the above data (i.e. estimated property value, property value time series, etc.).   

Once the pool data is available, a rigorous process of data normalization (needed to make data coming from different sources and / or institutions comparable and coherent) takes place followed then by the quantitative (econometric) analyses. The overall process is summarized in the following five steps:

  1. Data organization – going from data specifications preparation and data gathering through to data normalization and enrichment, data quality analysis. This ultimately leads to the data pool consisting of both energy efficient and non-energy efficient loans and mortgages so as to allow for comparative analyses of risk and its impacts;
  2. Model design – the fundamental pillars of the quantitative analysis are defined. They include the risk analysis (i.e. risk definition, choice of the appropriate time horizon, sample selection, segmentation, etc.) and the impact analysis (e.g. assessment of credit risk of energy efficient vs non-energy efficient portfolios, impacts on portfolio expected credit losses, regulatory capital absorption, etc.);
  3. Correlation analysis – based on the model design, the econometric analyses defined above are carried out to assess how energy efficiency affects credit risk and recovery rates (from property sales). At this stage, the a priory hypotheses are verified and preliminary evidence also further investigated;
  4. Impact analysis – quantification of the impact of such correlation evidence on the portfolio performance (i.e. risk, cost of risk);
  5. Reporting – final document reporting assumptions and findings.

Impact of Energy Class on Credit Risk

Crif has already carried out a preliminary assessment of the impact on credit risk of energy class using a sample of about 18.000 mortgage loans for which all customer level (e.g. age, marital status, residential status, etc.) and contract level information (e.g. property EPC, loan amount, property value, downpayment amount, term, etc.) was available. Credit performance was also available allowing to observe credit risk differences between energy efficient and non-energy efficient obligors. In order to take in due account potential customer profile differences, the portfolio was clustered into segments homogeneous in terms of property value and loan-to-value rate.

The analyses showed that, within the identified clusters, that energy classes A and B report a much lover one-year default rate compared to the other classes (that are twice as risky and classes A and B).

The sample size is not large enough to generate robust evidence. Further analyses and larger and more representative samples are necessary in order to confirm and possibly fine-tune the above evidence.

Impact of Energy Class on Property Value

Another aspect that must be taken into consideration is the value of “green” properties and how real estate markets value them. These two elements may have a potential impact the collateral value (represented by the property) and therefore on the recovery rate realized from the property sale. The underlying assumption is that energy efficient properties have greater value than non-energy efficient ones (all the other features being the same) and that this value is less affected by the economic cycle (property resilience).

Contrarily to the probability of default, gaining robust evidence on recovery rates may prove rather difficult considering the average duration of the recovery processes in some European countries (e.g. Italy). Most financial institutions do not have EPC information at all, some others have started to collect it although only recently and then lacking it for most of the cases with complete workout processes for which recovery evidence is more robust.

The WP5 team is also facing this potential issue; completion of the data pool creation will tell how relevant this may be. Automatic Valuations Models (AVM) come into the game to help cope with such data limitations. The Automatic Valuation Model used by Crif, compliant with the the definition adopted by the European AVM Alliance®, is a system that provides an estimate of value of a specified property at a specified date (also in the past), using mathematical modelling techniques in an automated manner. The model  does not necessarily require any previous values of the property to be provided as input, but it only requires that a property be specified and therefore they can function merely based on property address (or cadastral reference or other forms of unique property identification)  and a few basic property characteristics. By analyzing these property attributes, (using the market comparison approach), it provides property valuation in different points in time allowing to observe how such value varies throughout time (possibly considering also impact of a full economic cycle).

A study has been carried out using a sample of 40.000 mortgage loans for which the ECP information was available. The property value corresponding to such loans was estimated for the years 2011-2018, separately for energy efficient and non-energy efficient properties. The preliminary evidence shows that energy efficient properties actually have different value trends and prove to be more resilient compared to the non-energy efficient ones. The expected “energy efficiency” effect on property value is illustrated in the exhibit.

Conclusions & Next Steps

We are at the very early steps of WP5’s correlation analysis study. However, some preliminary analyses have provided some promising hints into how energy efficiency can affect credit risk and the ability to recover from property sale. The above studies were conducted on limited data samples and the gained evidence may be affected by the used data. The ground for the WP5 study has been prepared. The data gathering phase, the most crucial one, has already started with the aim of building a pool large enough to be representative of the market and to allow for robust analyses. Data availability and quality are crucial. WP5 team has then prepared a plan for data remediation and enrichment so as to effectively cope with potential data issues.

Further evidence will be made available as the study progresses.

E.ON joins forces with BNP Paribas Personal Finance to help UK home owners unlock energy efficiency potential through ‘Energy Efficient Mortgages’

By Marco Marijewycz, E.ON  

Around 19 million UK households – equal to around 71% of the UK’s 27 million homes – currently fall below an Energy Performance Certificate (EPC) Band C rating, which means they are missing out on energy savings of up to £380 a year by not having basic measures in place.

Tackling energy efficiency levels of existing housing stock is one of the biggest infrastructure challenges of this generation and is part of the Government’s Clean Growth Strategy which aims by 2035 to bring as many homes as possible up to EPC Band C level where practical, cost-effective and affordable.

Under the umbrella of the Energy Efficient Mortgage Initiative, E.ON is working with BNP Paribas Personal Finance to develop and pilot an innovative Energy Efficient Mortgage product, which will allow movers, first time buyers, and re-mortgagers to use their mortgage to borrow further via a linked ‘energy efficiency home improvement loan’ to improve the energy efficiency of their homes. Under this model BNP Paribas Personal Finance would provide the improvement loan financing and E.ON would provide a managed service to install appropriate energy efficiency solutions. This service would help the customer to identify what measures would deliver the greatest savings potential, E.ON would then install the measures and offer a range of in-life energy services.

The improvements funded through the scheme loan could also result in a discounted mortgage rate once the energy efficiency measures have been verified via an updated EPC.

Michael Lewis, Chief Executive, E.ON UK, said: “We need to find ways to radically increase interest and action on energy efficiency in homes, but property owners often face a significant financing barrier when wishing to do so. In the UK, attempts have been made in the past to tackle this barrier through schemes like the Green Deal, but they have not been successful, in part because they weren’t designed with the customer front and centre.

Energy efficient mortgages have the potential to be a game changer in the delivery of affordable finance and we are ready to meet the challenge for home-owners motivated to take the step into energy efficient living. Our agreement with BNP Paribas Personal Finance is a further step along this journey and brings together two well-known international companies with expertise in financing and delivering energy saving solutions across Europe.”

Easier access to affordable financing via an energy efficient mortgage should provide an added incentive for customers to better insulate buildings, replace old heating systems or increase their energy independence through solar panels, batteries or virtual storage. It can also ease the purchase of existing energy-efficient houses or commercial buildings through preferential financing in conjunction with a mortgage.

The ambition of this Energy Efficient Mortgage pilot is to provide a competitively priced home improvement loan provided by BNP Paribas Personal Finance linked to a mortgage to fund a range of personalised energy efficiency solution bundles delivered by E.ON. These could include measures such as insulation, energy efficient boilers and smart meters and smart thermostats. For customers wishing to prepare their home for tomorrow’s energy world, smart energy technologies such as electric vehicle charging points, solar panels and battery storage could also be funded as part of the Energy Efficient Mortgage pilot, as well as heat pumps. All of which E.ON intends to steer by its innovative Home Energy Management System Dashboard.

E.ON and BNP Paribas Personal Finance are working towards further collaborations with building societies and High Street finance providers to pilot and develop this innovative new financing solution to customers, initially for the UK market, in the first half of 2019. This collaboration aligns closely to the recommendations of the UK Government’s Green Finance Task Force.

The partnership follows consumer research undertaken by E.ON as part of the EeMAP project in several European countries in February 2018 to understand if customers would take advantage of an energy efficient mortgage where E.ON found a positive consumer appeal towards the concept, particularly in Great Britain. The research conducted by E.ON in several European countries looked into the question of whether customers would even take advantage of a standardized “energy efficient mortgage”. The result is consistently positive with the overall high level of appeal towards the concept particularly high in Italy and Great Britain. In Germany and Sweden, respondents welcomed the fact that, in addition to existing funding instruments, there was an alternative or more extensive offer.

Introducing the EeMAP valuation and energy efficiency checklist

By Ursula Hartenberger, RICS Global Head of Sustainability  

The recently published EeMAP definition for energy efficient mortgages presents a breakthrough in the project and provides the basis for establishing protocols to ensure appropriate lending secured against properties which are likely to both lower credit risk and  support the climate change mitigation agenda. The definition explicitly mentions the value aspect of the energy efficiency measures of the property for which an Energy Efficient Mortgage (EEM) is being sought and as such clearly refers to the EeMAP valuation and energy efficiency checklist, developed by RICS to aid transparency to the valuation process.

What is the checklist and how does it sit with the traditional canon of mortgage lending valuation instructions?

The EeMAP valuation checklist is the result of an in-depth consultation with valuers and mortgage lending banks from across Europe and is designed to complement existing instructions given to valuers. Currently there is no standard reporting template for valuers asking them for their assessment of the relationship between value and the energy efficiency aspects of the property although much of this information may already be collected and used implicitly to inform the valuer’s opinion of market value. The checklist provides a list of property characteristics which may affect the energy demands of the building – such as heating, insulation, structure and orientation to name but a few and requires the valuer to report on each explicitly using a tick box and comment facility.  Many of the indicators on the list will look familiar to valuers and banks as they are already part of existing valuation instructions –  the difference is that they will be assessed specifically from an energy efficiency perspective.

Therefore, if the instruction allows, valuers are advised to consider and make specific reference to those indicators and observed subsequent energy efficiency characteristics and implications which potentially could impact the value of the property and, indeed, consider this relationship in their final estimate of the subject properties market and mortgage lending value.

What implications does the EeMAP checklist have for lending institutions?

Depending on the lending context and/or the property-specific information already available or recorded, lending institutions may wish to complement their existing valuation instructions with selected indicators from the checklist, or indeed use it in its entirety.

In addition, banks are advised to capture important information on the indicators contained in the checklist as this is essential for measuring the financial performance of energy efficient mortgages and for benchmarking them in relation to key risk indicators such as Probability of Default (PD) or Loss Given Default (LGD). Additionally, by collecting and recording this data, it will better inform the valuers of the energy/value relationship. This could be important for EU policy moving forward.

What is the scope of the new EeMAP checklist?

The checklist is intended to serve different lending scenarios, including:

–        the origination of a new or extension of an existing mortgage for a property undergoing    renovation,

–        the origination of a new mortgage for an already energy efficient property, and

–        re-mortgaging.

The checklist has been created with user-friendliness in mind. It comprises three assessment categories:

  1. the core indicators, such as the EPC rating, energy consumption, physical building characteristics, condition of systems, availability of building related information/documentation, etc.,
  2. commentary regarding additional energy-performance related risk considerations, including building orientation, presence of renewables, lighting, etc., and finally,
  3. an assessment summary that also benchmarks the property in question against overall market expectations with regard to energy efficiency.

Valuers are asked to rank each indicator according to a RAG (Red, Amber, Green) rating with a supplementary comment column in which they should provide a brief rationale for their respective ‘RAG’ judgement where this is not obvious.

Red: Below market ‘norm’ – value actually/potentially at risk over period of proposed loan

Amber: On or near market expectations – may be at risk in medium term

Green: Above market expectations and therefore likely to present a lower value risk moving   forward.

Grey: No data available

Are valuers in Europe ready for the new EeMAP energy efficiency valuation checklist?

The EeMAP consortium is fully aware that widespread market uptake of the EeMAP valuation checklist will depend on valuers feeling comfortable with making a professional judgement on the potential value impact of energy efficiency characteristics of a property. The consortium is also conscious of the fact that not all valuers in Europe undertaking valuations for mortgage lending purposes may currently have the necessary knowledge to assess some of the technologies that impact on energy efficiency and performance in order to appropriately complete and rate all indicators and assess their potential to impact value.

Therefore, the EeMAP consortium is now working on additional reporting guidelines to support the practical application of the checklist by providing explanatory notes on each of the checklist’s core indicators as well as the items under the commentary section and the overall assessment summary.

On the basis of these explanatory guiding notes, a tailor-made set of EeMAP energy efficient mortgage valuation training slides will be developed and integrated into existing valuation and energy efficiency training material, developed as part of the Intelligent Energy Europe funded project RenoValue. The combined training package will cover the following: the rationale and business case for integrating a building’s energy efficiency features as part of the valuation process, an introduction to energy efficiency in buildings, sources of information on energy performance, the integration of energy efficiency considerations into valuation methodology and valuing energy performance as part of valuations for mortgage lending purposes.

The joint EeMAP / RenoValue training material will be free and can be used either inhouse by lenders or in those cases where valuations are outsourced by firms contracted to carry out valuations on behalf of the bank.

Energy efficiency and probability of mortgage default: linkages and hidden risks

By Max Riedel, Research Fellow at Ca’ Foscari

Do borrowers become more creditworthy if they take out a mortgage on an energy efficient (EE) building? Or, to start with a more prudent question: does there exist any empirical relationship between EE and the probability of mortgage default (PD) at all? The first question is concerned with the identification of a causal link between EE and PD, while the second questions the very existence of a link between the two. The current data environment is challenging for answering either of the two questions.

To study the link between EE and PD, the necessary pre-condition is a clean, granular dataset that accurately distinguishes between loans on EE and non-EE buildings. Unfortunately, this information is seldom readily available as banks either store energy performance data in physical form, which is retrospectively costly to digitalize, or data is not being stored at all due to lack of an IT solution. Furthermore, the link has to be identified by taking into account borrower and building characteristics that might confound the empirical findings if not included. For instance, borrower’s age, building age, or location might have a confounding effect on the identification of a clear relationship between EE and PD. Fortunately, banks already collect the most relevant information in order to feed their credit risk models. Therefore, the main challenge in this respect lies in the collection of EE data and its merge with the remaining mortgage information.

When it comes to identifying causality, the requirements on the analysis become much more demanding. In order to establish a causal link, we have to understand and take into account the borrower’s consumption behaviour. Suppose a borrower buys a highly energy efficient house. One might argue that she will save money on heating and, thus, is more likely to repay her debt, which, in turn, should be reflected in an improvement of her credit rating. However, this would only hold true if she did not change her consumption behaviour. And this is where the currently unobservable risk lies: the unexpected deviation from the former consumption pattern after mortgage origination. For instance, the borrower could decide to change her heating habit and might use up the EE savings on more intense or careless heating. In the literature, this scenario is referred to as the rebound effect. The rebound effect generally refers to an increase in the request of energy services due to the decrease in the effective price paid by the consumer. However, she might also spend her EE savings on some other consumption products, such as a new car or kitchen. In addition to the shift in consumption, the borrower might also self-select herself into the data sample. In this case, not EE per se but a different factor would affect the credit risk. For instance, environmentally conscious borrowers are more likely to buy an energy efficient building and their attitude towards debt repayment might differ from other borrowers. In order to identify the causal link one has to account for such subtle factors. This is a challenging task as the bank typically does not collect soft information. However, there are solutions to overcome this issue. Regarding the consumption pattern, the bank typically possesses the borrower’s financial transaction history and can track its development over time. Additionally, utility companies collect energy consumption data, which allows to measure the rebound effect. To account for the other soft borrower characteristics, customer surveys would be helpful in order to estimate their general attitude towards the environment.

As of date, it is a challenging task to meet all data requirements for a causality analysis. The reasons being lack of data and privacy concerns. Thus, we focus our analysis on the correlation between EE and PD, and leave the causality question for a future study. In the following, we present our findings from the Dutch mortgage market.

Using loan-level data from the Dutch mortgage market, we investigate the relation between a building’s energy efficiency and the probability of mortgage default. By focusing on residential buildings exclusively, our sample consists of mortgages issued on more than 120,000 dwellings. We supplement the dataset with provisional energy efficiency ratings that are assigned by the Netherlands Enterprise Agency (Rijksdienst voor Ondernemend Nederland, RVO) to all Dutch buildings that are not yet supplied with the actual energy performance certificate (EPC) rating. RVO provides rating categories for 60 pairs of different building type and construction period combinations in the Netherlands. This allows us to match the loan data with EE ratings according to building type and construction year. Additionally, we exploit the fact that the ratings change asynchronously across the different building types in order to disentangle the energy efficiency-component from building type- and building age-specific effects that are typically associated with borrower’s risk of default. We employ two empirical methodologies – the Logistic regression and the extended Cox model – and find that energy efficiency is negatively correlated with a borrower’s likelihood of default on mortgage payments. The results hold if we account for borrower, mortgage, and market control variables. The findings also survive a battery of robustness checks. As an additional exercise, we investigate to what extent the degree of energy efficiency plays a role on borrower’s credit risk. Our findings suggest that mortgages on more efficient buildings are less prone to default. However, the findings on the degree of energy efficiency are less significant than the baseline results.

To date, only few studies attempted to investigate the correlation between EE and PD. To our knowledge all these studies were focusing on the US market. Our empirical exercise is among the first ones to establish a link between EE and PD with European mortgage data. We are optimistic that this field of research will grow as more European countries and banks commit themselves to collect and share their data.

Energy Efficient Mortgages: A greener future for Europe

Brussels, 3 December 2018 – For immediate release

The Energy Efficient Mortgages (EEM) Initiative is, today, unveiling its definition of an energy efficient mortgage which is the result of extensive cross-sectoral, market consultation of the lending institutions piloting the energy efficient mortgage framework and of the EEM Advisory Council.

Today’s announcement coincides with the start of the United Nations Climate Change Conference – COP24 –  taking place in Katowice, Poland until 14 December.

The definition is intended as a concrete response to the efforts of the European Commission to construct a capital markets union, to facilitate the clean energy transition in line with the Paris Agreements, and in this context, to build a financial system that supports sustainable growth. It will provide a market benchmark to operationalise the integration of energy efficient mortgages into the business lines of the forty-one pilot lending institutions. At the end of 2017, these lending institutions represented 55% of mortgages outstanding in the European Union, equal to 25% of EU GDP, constituting significant critical mass in the market.

The EEM Initiative is a market-led initiative, funded via the European Commission’s Horizon 2020 Programme, which aims to deliver a standardised European framework and data collection architecture for energy efficient mortgages, with favourable financing conditions for energy efficient buildings, energy saving renovations and anti-seismic measures.

The EEM Pilot Scheme was launched in June 2018, further to the engagement of market actors in a consultation process by way of national and European roundtable events. The pilot scheme lending institutions are supported by the EEM Advisory Council, which includes representatives from the European Commission, the European Investment Bank, the European Bank for Reconstruction and Development, the International Finance Corporation, The World Bank, UNEP Finance Initiative, the Scottish Government and Climate Bond Initiative.

Gerassimos Thomas, European Commission, Deputy Director-General for Energy, stated:

I believe the EEM Initiative will bring a positive change in the market, providing more accessible financing for energy efficiency in buildings. It will facilitate the implementation of energy efficiency investments where they are most needed, in the buildings sector. Having agreed on a definition is an important step, opening the way for a quick roll-out of energy efficiency mortgages. The definition agreed upon is operational and easy to use, and can be strengthened in time, to match the high level of ambition of the EEM Initiative, and to make better use of the tools provided by the European legislative framework.”

Luca Bertalot, Energy Efficient Mortgages Initiative Coordinator, stated:

“Now is the time to take action, a market roadmap is the most effective way of delivering mortgage financing solutions to support European citizens in making their homes more energy efficient, comfortable, secure and therefore, ultimately, future-proof. The definition announced today provides a strong, operational market benchmark for lending institutions and a clear blueprint for the European Commission’s Sustainable Finance agenda, by facilitating cross-sectoral and institutional coordination and delivering market innovation and synergies.

  • To consult the Lending Institutions, please click here
  • To consult the Advisory Council, please click here
  • To consult the Supporting Organisations, please click here

Additional information can be found under the Pilot Scheme section: Roadmap and Pioneers


Luca Bertalot, Energy Efficient Mortgages Initiative Coordinator
Tel: +32 2 285 40 35

Colibri Hypotheken joins the Energy Efficient Mortgages Pilot Scheme, bringing the number of participating banks to 40

Brussels, 27 November 2018 – For immediate release

The Energy Efficient Mortgages (EEM) Initiative is delighted to announce that Colibri Hypotheken has decided to participate in the Energy Efficient Mortgages Pilot Scheme.

As of today, 40 European banks are taking part in the Pilot Scheme, launched last June, and have committed to test the implementation of the final energy efficient mortgages framework into their existing product lines and processes. These banks are joined in the Pilot Scheme by 25 other supporting organisations throughout the EU.

The Pilot Scheme is composed of 7 subgroups combining market and institutional expertise to help refine the framework. The initial results of the analysis conducted since the launch of the Pilot in June were presented during the Pilot Scheme Meeting took place in Venice on 27 September 2018 in the presence of members of the Advisory Council.

The ultimate goal of the EEM Initiative is to deliver a mortgage financing mechanism, according to which borrowers are incentivised to improve the energy efficiency of their properties or acquire highly energy efficient properties, by way of favourable financial conditions linked to the mortgage. The Initiative will furthermore develop a data collection infrastructure for energy efficient mortgages.

Luca Bertalot, Energy Efficient Mortgages Initiative Coordinator, commented:

“It is with a great pleasure that we welcome Colibri Hypotheken to the Energy Efficient Mortgage Pilot Scheme. In order to achieve more sustainable growth and reach the European Union’s Capital Markets Union project along with the Paris Agreement goals to fight climate change, everyone must play a role. Since its launch in June, the number of banks participating in the Pilot Scheme has constantly increased, demonstrating the relevance of the Initiative and the willingness of the market to work together to build a greener and more sustainable planet for the future generations.”

Joost van Sligtenhorst, Colibri, stated:

“Today, two of the biggest challenges concerning the green transformation of residential properties, are financing energy saving measures and accessibility for inexpert home owners. At Colibri, we have great aspirations in bridging this chasm in two ways. First, we deal with the financing issues by making investments profitable, launching a green mortgage with extra loan capacity and financial benefits to our borrowers. Second, we address accessibility by teaming up with a Dutch initiative, guiding and advising home owners towards the actual implementation of energy saving measures.

Still, we believe that the green transformation can only be achieved when people, businesses and governments cooperate together. Therefore, we joined the EEM Initiative, pursuing a commonly adopted framework and a standardised, effective way to provide for affordable and accessible mortgage solutions. Together, we can actually get the energy transition broadly supported and pave the way to sustainable and energy efficient homes.”


Luca Bertalot, Energy Efficient Mortgages Initiative Coordinator
Tel: +32 2 285 40 35

Energy Efficient Mortgages Initiative strongly welcomes first strategic partnership to be launched under the Energy Efficient Mortgages Pilot Scheme

The Energy Efficient Mortgages (EEM) Initiative strongly welcomes today’s announcement that E.ON and BNP Paribas Personal Finance UK will work together to develop and pilot an Energy Efficient Mortgage product, in the first strategic partnership of its kind to be launched in the context of the Energy Efficient Mortgages Pilot Scheme.

Under the partnership, BNP Paribas would provide the improvement loan financing and E.ON would provide a managed renovation service. This service would help the customer to identify what measures would deliver the greatest savings potential, E.ON would then install the measures and offer a range of in-life energy services.

Currently, 39 European banks are taking part in the Pilot Scheme, launched last June, and have committed to test the implementation of an energy efficient mortgage product into their existing product lines and processes. These banks are joined in the Pilot Scheme by 25 other supporting organisations throughout the EU.

Luca Bertalot, Energy Efficient Mortgages Initiative Coordinator, commented:

“We are delighted to see that the Energy Efficient Mortgages Initiative has triggered real cooperation among market players which will provide consumers with a concrete incentive to improve the quality of their homes by way of an energy efficient mortgage. This latest development shows how the Initiative is a win-win for consumers and market players and we hope that this will be the first of many strategic partnerships in this area.”


Luca Bertalot, Energy Efficient Mortgages Initiative Coordinator
Tel: +32 2 285 40 35

Building a greener society: Ecology Building Society joins the Energy Efficient Mortgages Pilot Scheme


Brussels, 20 September 2018 For immediate release

The Energy Efficient Mortgages (EEM) Initiative and Ecology Building Society are delighted to announce that Ecology Building Society will participate in the Energy Efficient Mortgages Pilot Scheme.

The EEM Initiative is aimed at delivering a mortgage financing mechanism, according to which borrowers are incentivised to improve the energy efficiency of their properties or acquire highly energy efficient properties, by way of favourable financial conditions linked to the mortgage. The Initiative will furthermore develop a data collection infrastructure for energy efficient mortgages.

Currently, 39 European banks are taking part in the Pilot Scheme, launched last June, and have committed to test the implementation of the final energy efficient mortgages framework into their existing product lines and processes. These banks are joined in the Pilot Scheme by 23 other supporting organisations throughout the EU.

The Pilot Scheme is composed of 7 subgroups combining market and institutional expertise to help refine the framework. The initial results of the analysis conducted since the launch of the Pilot in June will be presented during the forthcoming Pilot Scheme Meeting taking place in Venice on 27 September 2018 in the presence of members of the Advisory Council.

Luca Bertalot, Energy Efficient Mortgages Initiative Coordinator, commented:

We are delighted that Ecology Building Society has decided to join the Pilot Scheme and has embraced this Initiative just ahead of the Pilot Scheme meeting in Venice. Having Ecology on board is a valuable addition as it brings their extensive experience of supporting sustainable development to the table. The increasing number of organisations participating in the pilot scheme underlines the willingness of the market to take action and to play a pivotal role, in supporting the European Commission in achieving its ambitious energy savings targets, building a greener society and a more sustainable future.”

Paul Ellis, Chief Executive of Ecology Building Society, stated:

“If we are to meet our Paris climate agreement commitments, the finance sector needs to support the transition to a low-carbon economy.”

“Ecology has pioneered green mortgages for over 30 years. Over that time we’ve proved that incentivising energy efficiency through mortgage pricing works by basing our mortgage rates on a property’s climate impact.”

“By participating in the Pilot scheme we are able to share our experience of using the pricing mechanism to reward best practice and innovation in low-carbon building and contribute to the development of industry-wide criteria for green mortgages.”

“We hope that this results in a permanent and committed journey for those lenders who are taking part.”


Luca Bertalot, Energy Efficient Mortgages Initiative Coordinator


Tel: +32 2 285 40 35

Ian Rigarlsford, External Affairs Manager


Tel: +44 (0) 1535 650770

Mob: +44 (0)7421 745411

Developing technical due diligence for valuers: towards additional information for lenders

By Sarah Sayce professor of University of Reading and Zsolt Toth, External Affairs & EU Liason Manager, Europe RICS

Valuers act in accordance with the instructions they receive and the requirements of their professional body. As energy efficiency is likely to present a lower risk in terms of value moving forward, it is therefore a risk factor to any loan. Under prevailing client instructions, the valuer will normally be asked to comment on some of the most common risks to value in relation to the property and its general suitability for a loan, while energy rating is not normally a specified risk. However, some lenders, believed to be a growing minority, are now asking for information in relation to energy ratings and energy efficiency if such data is available.

It is from this starting point that the EeMAP commenced. Discussions with banks, valuers and professional bodies revealed that greater clarity and standardisation of instructions to valuers, with respect to reporting on energy efficiency, will assist lending institutions to develop a clearer and more explicit understanding of the potential risks associated with properties that could be subject to value depreciation due the building’s energy characteristics.

For this to happen there is a requirement to work with all the stakeholders to establish both how the instructions could be clarified and how appropriate information could be recorded and reported back to inform lending decisions.  Earlier this year, we developed a draft checklist of information relating to building inspection and valuation which is intended to pilot as a possible extension to the instruction, inspection and reporting protocols for valuers.

The valuation checklist: an enhancement to the due diligence process

Under current due diligence processes, energy efficiency data should be collected and considered, where it is available and used for the assessment of Market Value only where comparable evidence supports it.  However, by an awareness of the potential implications of sustainability and energy in the future, the valuer should be in a position to offer pertinent advice where data is available, if so instructed.  The purpose of the draft checklist, therefore, is four fold; it is to:

  • provide a potential extension for instructions for secured lending;
  • enable valuers to reflect upon the building characteristics that impact on energy efficiency and form a judgement as to whether such characteristics present a risk reduction or increase to the security of the asset for the loan moving forward;
  • Engender greater awareness of energy matters by valuers and encourage participation in upskilling;
  • Build awareness of energy efficiency risk among the banks’ risk assessment departments, improve their skills of how to interpret valuation and EPC reports as well as learn how to challenge valuers in case of incomplete valuation reports.

Testing the checklist prior to the Pilot phase: what we hear from valuers

Given that the responses to the public consultation carried out earlier the year, whilst useful, could not give ‘fine-grained’ feedback on the checklist, semi-structured discussions with valuers operating in different EU Member States have been conducted. The discussions with valuers provided useful confirmation of previous findings but also added depth of insight as follows:

I. Instructions from clients in respect of energy efficiency.

The interviews confirmed that in general banks only required a report on the EPC – if indeed they require anything in terms of energy. Although it was reported that some valuation reports contain comments on energy efficiency related risks and benefits, many lenders, in practice, do not take account of these considerations. No valuer reported that banks ask for comments on the risks posed over the life cycle of the asset.  These opinions underscore the previously recorded findings and point to the need to engage banks as commissioning clients.

II. The use by valuers of existing guidance during their due diligence and reporting processes

The valuers interviewed work across a range of countries, it was confirmed that valuers should be reflecting energy efficiency but only if there is a discernible value attached to it. In Germany, the requirement goes further with regulatory standards already requiring valuers to reflect energy efficiency as expressed in: maintenance costs, yield, rent levels, ease to rent, etc. However, even if energy efficiency is taken into account it is difficult to extrapolate; partly as there is insufficient real data, a point that was made very strongly in relation to Italy.   The lack of data was a persistent theme with the view expressed that in some cases valuers do not even have EPC data available.

III. Views as to the draft checklist and explanatory notes

Opinions were extremely positive being described variously as “a great initiative”; “promising”; “relevant” and “a great rating tool which can help valuers”.  Whilst to most valuers, there are elements within the checklist that are not being considered currently as part of the inspection/due diligence process, it was pointed out that some elements were already matters that the valuers routinely collected and indeed reported. However, in no case were those items considered in terms of their impact on value risk, as required in the judgements in the RAG rating. In summary, whilst some of the items on the checklist would require additional information being collected – or in some cases provided by a specialist energy assessor, many items could be so collected and judgements made. This would be a useful service to the client – if they were to request it.

IV. Suggestions for improvement of the checklist

First, there was a general acknowledgement that the checklist requires extra work on clarifying the indicators and additional guidance. Second, it was regarded as quite long and containing too many questions. As a consequence, it was suggested that it should it focus on those questions that most clearly have a risk mitigation impact; be mindful that some factors are already included in the valuation. Third, it was suggested that, as many valuers now use digital reporting and input direct from their site notes, to develop the tool such that it can tie in with the digital reporting templates would better assure its take up.   This would lead to greater efficiency and reduce the requirements to ask for additional fees.

 V. Constraints

Finally, valuers were asked about barriers and constraints to adoption of a developed version of the checklist. It was acknowledged that several existed, the key issues raised were:

  • valuation report templates used by banks often do not allow to comment on energy efficiency and value and associated risk implications;
  • many secured lending valuations are undertaken with the use of Automated Valuation Models (AVMs) and these cannot accommodate the checklist. The checklist is therefore predicated upon valuer physical inspections;
  • Some mortgage lending products may act as a barrier to creating demand, such as as fixed-term mortgages without the possibility to change the terms and conditions;
  • whilst the checklist could produce in effect a risk score, the quality and quantity of data in terms of energy is still so thin that the influence on market value will remain muted;
  • the issue of liability of the valuer was raised; to mitigate this it would possibly be necessary to be provided with the energy audit;
  • The question of additional fees for additional work was raised by several; clearly this needs address in order to achieve acceptance of the principle;
  • Several valuers pointed to the need to upskill valuers and that an energy audit would be key to underscore the use of the checklist. The issue was equally raised that banks will also need to be educated in order to better understand valuation and EPC reports and to learn how to question valuation reports. The latter can be extended to internal key stakeholders within banks, including the first point of client contact, i.e. the customer services representative.

Concluding remarks

The interviews provided new insights, confirmed some concerns in terms of constraints in adoption that will require address but overwhelmingly provided positive support.  Summarising the feedback received, it is becoming clear that many valuers are in fact already considering energy efficiency as part of their daily valuation practice and that many of them are already collecting data and information and this predominantly through EPCs and physical inspections.

However, the interviews and previous survey also showed that there are a number of structural barriers within the mortgage lending process that should be considered and addressed by banks during the EeMAP pilot phase.

Energy Efficient Mortgages can unlock Europe’s first fuel

By Marco Marijewycz, International Market Manager B2C, E.ON

Improving the energy efficiency of Europe’s building stock is one of the greatest infrastructure challenges facing our generation. Europe has one of the oldest concentration of building stock in the world, with about 35% of the continent’s buildings over 50 years old. Moreover, buildings account for 40% of EU energy use, and it is estimated that the EU needs to invest around €100 billion annually in building renovations to meet its energy and climate goals.

This is why improving the energy efficiency of the EU’s existing building stock is such a key priority for the European Commission in order to protect the environment save both costs for consumers and increase energy security. By improving the energy efficiency of buildings, we could reduce total EU energy consumption by 5-6% and lower CO2 emissions by about 5%. Indeed, from an energy security perspective, it has been said that the cheapest power station you ever build is the one you don’t build. Put simply energy efficiency can be Europe’s first fuel.

There is also a clear consumer case for energy efficiency, for example according to a previous study commissioned by the UK Government, upgrading energy efficiency of their property with a move from an EPC Band E to an EPC B could enable homeowners in England to reduce their energy costs by around £380 per year on average. Moreover, for an average home in England, improving its EPC from band D to B, could mean adding more than £16,000 to the sale price of the property.[1]

But with the consumer case so clear for energy efficiency, why on the domestic property side have we seen slow progress, and what role can private finance play in unlocking an energy efficiency revolution in Europe?

There are numerous reasons for the slow uptake of energy efficiency across the domestic property stock of Europe. Whether that’s the split in incentives between landlords and tenants vis-à-vis the cost recovery of energy efficiency investments through higher rental charges, fragmented Government policy in this area, or the lack of affordable finance for property owners wishing to make energy efficiency improvements. However, it is the lack of affordable finance problem area that I wish to focus on.

Whilst EU Member State Governments have made positive strides to increase the uptake of energy efficiency through policy actions, these policy interventions have been more incentive or ‘carrot’ driven given the political risk of pushing regulatory or ‘stick’ driven interventions on the electorate. This is completely understandable. How can a Government regulate improvements to domestic properties without the confidence in the market being there to deliver on the demand policy action would create? However, on the flip side, how can the market ready itself and invest in capabilities and technology without the surety of demand what regulatory interventions provide. The reality is you can’t beat people into action with carrots, and if the sticks are not well justified then the electorate will have the Government out of office at the next election.

In sum, the real issue here is that we have been too linear in our approach to drive domestic energy efficiency uptake and not integrated enough in our actions. There has been too much reliance on Governments to make the market and there has not been enough creative cooperation between market actors from across the value chain. In short, we have treated energy efficiency as a problem for Government to solve rather than an opportunity for the market to better serve customers and citizens. However, to succeed both Government and the market need to work closely together with a clear, single focus – a ‘transaction focus’. Mortgages offer such a ‘transaction focus’ as they represent a key intervention opportunity for the message and benefits of energy efficiency to be communicated to the customer at a time when a long-term mindset is being taken. They create a moment when the customer is potentially more open to receive the benefits message, and also learn about available Government support for energy efficiency improvements.

It is for this reason that the market-led Energy Efficient Mortgage initiative (EEMI) possesses such transformational power, and offers finally a vehicle for Government policy and incentives to connect to, complement and enhance. For the first time the EEMI has brought together an eco-system of market actors with the power to act on the lack of affordable finance of home energy efficiency improvements. This initiative is convening banks, valuation professionals, energy companies and energy efficiency experts under a single mission, to create a standardized energy efficient mortgage concept for Europe. Through deep cross sector cooperation this initiative can enable the reformulation of an incentive chain to work for all market actors and most importantly, customers.

This is why E.ON is proud to be the only European energy company to be involved in this pioneering initiative. We also see great partnership possibilities with banks that mean together we can deliver customers a great energy efficient mortgage experience. Our confidence is not misplaced however, indeed as part of our role in the EeMAP project, E.ON has led the consumer research programme.

In our study supported by research agency BASIS we uncovered key consumer insights arising from Germany, Italy, Sweden and the United Kingdom which indicate a positive customer reaction to the concept of an energy efficient mortgage. In fact appeal of the concept is highest in Italy (80% very/quite appealing), followed by the UK (66% very/quite appealing), with very low outright rejection of the idea. Not surprisingly, the appeal is highest to those customers who are open to making energy efficiency improvements to their properties and to those that would consider taking out a loan to do so.

The one most important reason for finding the product appealing was the financial benefit of the product. Financing means different things in the study countries, in the UK and Sweden, it is about having access to a lower interest rate, while in Italy it is about achieving long term savings.  Of almost equal importance to finance as a driver are energy considerations, namely the tangible benefit of bringing down energy bills, particularly in the UK and Italy.  The emotional benefit of achieving a warm and comfortable home is a strongly recognised energy benefit in all countries.

We strongly believe that easier access to affordable financing via an energy efficient mortgage should provide an added incentive for customers to better insulate buildings, replace an old heating system or increase energy independence through solar panels in conjunction with batteries or virtual storage. For E.ON this is highly relevant because as a business we have shifted from a traditional utility business model to that of an energy solutions provider. Our focus is therefore to enable customers to live more sustainably, lower their energy bills and increase their participation in the energy system through solar and battery solutions.

Across our seven market regions and to over 22 million EU citizens in those markets we are already offering such solutions. We are therefore well positioned to enable banks to deliver an innovative and compelling energy efficient mortgage customer experience. The EEMI pilot phase presents a great opportunity for experimentation and cooperation to find the right energy efficient mortgage product formula for consumers. E.ON’s research has already shown there is demand and we are committed to participating in the pilot scheme. We are therefore very interested to collaborate with banks who have also signed up to the pilot scheme. Together we have the opportunity have real impact for people, the planet and the future profitability of our enterprises and work together with Governments and other key EU Institutions to scale up an exciting new mortgage market.

The future is now, join with us, we are ready.