Banks already offer climate-efficient mortgages today – but the market is confusing. The Bankers Association proposes a catalog of measures designed to make the renovation of old properties more attractive.
According to the Bankers Association, it sometimes takes 15 years before the installation of a heat pump is financially worthwhile. That should change.
When climate activists occupy counter halls and organize sit-ins in front of bank branches, they often justify their civil disobedience by saying that the financial institutions, through lending, made climate-damaging activities such as coal mining possible in the first place.
The banking center denies this, but is now making its own proposal in a new discussion paper on how to significantly reduce greenhouse gas emissions with “climate-efficient mortgages”. It should become more financially attractive for owners and buyers of older buildings to refurbish their properties, and the banks themselves should also be given an incentive to finance more energy-efficient building refurbishments.
The goal: a renovation rate that is twice or three times as high
The Bankers Association assesses the status quo in the paper as insufficient: the average age of real estate in Switzerland is 45 years, many of which date from before the Second World War, are mostly poorly insulated and are heated with fossil fuels. Buildings in Switzerland vary by estimate for every third tonne of greenhouse gas emissions and responsible for more than 40 percent of energy consumption.
The CO2Emissions according to the association “already drastically reduced in some cases”. Oliver Buschan, member of the board of the association, says: “The annual renovation rate would have to be twice to three times as high if the federal government wants to achieve the climate goals it has set.”
According to Buschan, the reason why the renovation rate remains at one percent is that the price of CO2– emissions are not user-friendly. There is no true cost. From a financial point of view, it is therefore more worthwhile in the short term to replace a defective oil heating system with a new oil heating system instead of installing a more expensive heat pump.
So far, hardly any incentives for investment properties
The purchase of photovoltaic systems often only pays off financially after more than a decade – if at all. In the case of investment properties in particular, the incentive for greater energy efficiency is lower than in owner-occupied properties due to the fact that energy costs are passed on to tenants. “Sometimes it takes 15 years for a heat pump to make financial sense. We have to change that.”
In its discussion paper, the Bankers Association proposes measures at the level of the authorities and the financial sector, which should provide incentives for bank customers to renovate their properties.
More advantageous financing conditions for renovations
Of particular interest to owners of older properties is the proposal aimed at enabling banks to grant them more advantageous financing conditions for energy-efficient building renovations. The federal government is unlikely to lend a hand to banks having to deposit so-called climate-efficient mortgages with less equity so that they can offer their customers lower interest rates. That would be in conflict with the Basel Committee’s capital requirements.
However, what should be more possible from a regulatory point of view is a change in practice in the building valuation: Specifically, according to the Bankers Association, it should be possible in the future, for example, for banks to be able to add the installation of a heat pump or the renovation of the building envelope one-to-one to the building value.
This would mean that the loan-to-value ratio would increase less than before if the mortgage were to be increased as part of a renovation. This, in turn, enables the bank to offer customers better financing terms because they, in turn, have to deposit the loan with less equity due to the higher value of the building. Due to the lower loan-to-value ratio, the repayment pressure for mortgage borrowers also decreases.
With self-regulation possible
Such a change in practice on the part of the banks should be possible within the framework of self-regulation by the banks without changing the Capital Adequacy Ordinance at federal level.
According to Buschan, a similar proposal is currently pending before the EU Parliament. “Such a solution is attractive for the bank because it means they have to deposit less of their own funds, but also for customers because they have less pressure to pay off their mortgage.”
The Bankers Association also wants to bring more comparability to the market. Today, a number of banks offer climate-efficient mortgages, but the conditions and valuation models differ greatly. One idea is therefore to classify mortgages “according to their climate efficiency” based on data such as the type of heating system and the living space. This requires an industry-wide standardized database. The cantons’ existing building identification card (GEAK) could serve as part of a kind of “building e-ID”. According to the paper, climate-efficient mortgages must “definitely have a demonstrable impact on greenhouse gas emissions, energy efficiency and the lifespan of a property”.
The Bankers Association also considers regulatory intervention to be potentially advisable: For example, a system is conceivable with which the CO2-Emissions from buildings by CO2-certificates are controlled, or that fossil heating systems have to be replaced by alternatives. However, it makes sense to combine such bids and prohibitions with simultaneous support for conversion – for example by means of interest rate subsidies for renovation loans, tax breaks for efficiency-enhancing measures or targeted switchover premiums.
At industry level, the association wants to improve the customer advice process in a new self-regulation this year so that homeowners are informed early and more systematically about renovation options.
One question that arises if all the measures described are successfully implemented is what happens if the renovation rate suddenly explodes. “It is quite possible that in this case the construction industry will need a certain amount of time to serve the rapidly increasing demand.” But that would be a solvable problem.