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Cheaper European Mortgages on Tap to Energy-Efficient Homes

  • New pilot project reduces interest rates for sealing homes
  • ING, LBBW and Societe Generale among 13 participating banks

Thirteen banks across Europe including BNP Paribas SA and HSBC Holdings Plc will offer cheaper interest rates to people buying energy-efficient homes and to owners who insulate their drafty properties.

The project is being started by a consortium led by the European Mortgage Federation, according to a statement on Tuesday by the World Green Building Council. It seeks to create financing mechanisms to curb energy use and reduce the risk of consumer defaults, Luca Bertalot, secretary general of the Brussels-based federation, said in a phone interview.

Buildings in the European Union are responsible for more than a third of the bloc’s carbon emissions and improving their energy efficiency will be key to meeting climate change pledges agreed in December to keep temperatures below two degrees centigrade.

“We will need to develop innovative ways of financing energy efficiency in Europe’s homes if we are to stand any chance of meeting that goal,” said James Drinkwater, WGBC’s European director.

Pilot Project

During a two-year pilot project, banks will offer homeowners an additional loan on top of the mortgage to retrofit their property, Bertalot said. Once the renovations are complete, interest rates will be lowered to reflect lower home costs.

ABN AMRO Bank NV, Berlin HYP AG, Banco Bilbao Vizcaya Argentaria SA and Credit Agricole SA are among the lenders taking part in the pilot, which will accumulate data documenting its success, he said.

Research in the U.S. shows owners of energy-efficient homes are 32 percent less likely to default on mortgages, which in turn lowers bank balance-sheet risks.

“Most of the defaults on the mortgage spectrum happen in the first two years of life of the mortgage,” Bertalot said. “This intervenes immediately by offering extra money to do the work to reduce the energy bill.”

If the trial is a success, it could be rolled out to almost 2,000 banks and other financial institutions that the European Mortgage Federation-European Covered Bond Council reaches through its work, said Bertalot. The EMF has 19 members and the ECBC has more than 100 members, according to a spokeswoman for the organization.

Other banks taking part in the pilot include Caja Rural de Navarra, Muenchener Hypothekenbank, Nationwide Building Society, Nykredit Realkredit A/S, Societe General SA, UniCredit SpA and Landesbank Baden-Wuerttemberg.

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