Your home's energy performance is already affecting your mortgage––soon climate risk will too
Few consumers realize that a property's poor energy rating can directly affect their ability to obtain a mortgage. In the future, flood and other climate-related risks will also play a greater role in lending decisions.
Consumers often overlook the fact that a property's energy performance can directly impact their ability to secure a mortgage. In the future, climate-related risks like floods and wildfires will also play a more significant role in mortgage lending decisions. Researchers from Aalto University interviewed 25 green finance experts from major European banks and real estate firms, revealing that properties with high energy ratings make it easier for borrowers to access green lending or other financial perks, while low ratings can make financing more challenging.
Professor Seppo Junnila explains that banks currently base their green lending decisions on Energy Performance Certificates (EPCs) issued in the EU since 2002. When new EU Taxonomy rules took effect in 2020, criteria for a building's environmental friendliness largely relied on its EPC rating, leading banks to use these ratings to make green lending choices.
Banks are more likely to require expensive energy renovations for properties with poor energy ratings, potentially making them ineligible for loans. Properties with high energy ratings can receive more favorable financing terms, but the current financial system encourages banks to focus on new construction rather than energy renovations.
The study suggests that the criteria for green lending are evolving, but banks are responding more reactively than proactively. This could result in wealthier households benefiting more from favorable financing, leaving lower-income individuals with fewer sustainable housing options.
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