Energy mortgages: subsidies offered by the European Union

Although accessing a mortgage became considerably more complicated after the crisis, the real estate sector has grown again in recent years and seems to enjoy stable health. However, many factors in construction have changed during this time, and one of them is the emphasis on energy efficiency and properties with lower dependency on supplies. Not surprisingly, by 2020, all constructions in Spain must be Nearly Zero Energy Buildings. This is why energy mortgages exist today, a type of loan for those who are already betting on sustainable housing. What do the administrations say about this?

We can consider this type of mortgage loan - which we also tend to call green mortgages - and they basically include a discount for having implemented energy efficiency measures in the property. Right now, in our country, it is possible to cut the mortgage by about 9% if the best evaluation is achieved as an efficient building. What is the reason? According to Triodos Bank, which since 2014 has granted more than 1,700 energy mortgages worth 99.8 million euros, the key is that the delinquency rate for individuals has been 0% on these loans.

In Spain, however, we are quite behind in mortgage aid for flats that meet energy efficiency measures. In the United States, these types of mortgages also exist (known as Energy Efficient Mortgages as explained by Energy Star), but it is the European Union that is carrying out more assistance of this kind. Now, also in Spain, although it is a pilot test.

The European Mortgage Federation, better known by its English name as European Mortgage Federation, has launched a program for loan assistance to buy green homes. Under the name Pilot Mortgages for Energy Efficiency, the EU federation has joined seven financial entities, various associations, and administrations such as the Madrid City Council.

The project was presented this summer and, as announced by the federation, its main intention is to incentivize the creation of an energy efficiency mortgage. Its main arguments are based on the association's conviction that these energy mortgages minimize the risk of defaults for banks. On the other hand, property value increases, so in case of being sold, it will be appreciated.

Thus, it is expected that the European Union will provide Spain and other member countries with a standardized European framework to determine the discounts to be applied on energy mortgages. A common regulation that would force entities in our country to consider these discounts and that their minimums be offered in all banks.

The pilot plan for energy mortgages promoted from Europe is expected to last two years, with the main objective of seeing what response is obtained from both the entities and the buyers. Who is participating in this project? On the part of the administrations, the Madrid City Council. The affiliated financial entities are Triodos Bank - which has been offering similar mortgage loans since 2014 - Caja Rural de Navarra, and Union of Real Estate Credits.

The most important aspect of this pilot plan during its first phase relates to the financial institutions. They must present data on the impact of energy mortgages and their impact on credit risk. The European Commission, for its part, has committed to investigate the feasibility of including energy efficiency criteria in the European financial market.

Lower delinquency risk in energy mortgages

The main intention of this pilot plan of the European Union is to confirm that delinquency is lower in mortgage loans for homes or buildings with high energy efficiency measures. Although it is estimated that this is the case, this plan will make it possible to certify it.

So far, we can take into account the experience of Triodos Bank, an entity that started at the beginning of this decade to offer discounts on green mortgages, those that according to them are granted with discounts to buyers of buildings that incorporate significant sustainability measures.

At Triodos Bank, during the last four years, it has been demonstrated that delinquency is practically nonexistent with what we can call energy mortgages. To access one of them, it is necessary for the building to have sustainable energy sources, to have construction that minimizes spending on air conditioning, and to achieve the highest discount, that mechanical double flow ventilation systems be installed.

The almost imminent Nearly Zero Energy Buildings will undoubtedly be able to access these energy and sustainable mortgages. Thus, it is expected that when the European Union has data to launch a homogeneous proposal for this type of mortgage, new constructions can benefit from these discounts.