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3 mins
September 25, 2019

Green mortgages

Financial incentives to design and build high-performance homes.

High performance homes, designed and built beyond the standards set out in the Code, include a range of integrated design and construction features aimed at achieving greater energy efficiency, water efficiency, thermal performance, and resilience. 

Building high performance homes, and retrofitting energy, thermal or water efficiency improvements on existing houses, can be an expensive process, often requiring credit from a bank. Because of this relationship, building financial incentives into loans to improve the performance features in homes has been considered around the world as a solution to these challenges. 

Increasingly, banks globally are offering incentives to build high performance homes. The World Green Building Council (WGBC) defines green mortgage as lending where borrowers are offered “preferential terms if they can demonstrate that the property for which they are borrowing meets certain environmental standards”. The preferential terms can include reduced borrowing costs or access to larger amounts of credit. 

The number of high performance homes being built in New Zealand has not yet reached a critical mass and building such homes is still a niche market.

BERL undertook research as part of BRANZ’s Exceeding the Minimum programme to understand the role of the banking sector in New Zealand in lifting the standard of residential buildings and encouraging consumers to design and build high performance homes. The aim of the research was to identify the opportunities for banks to consider integrated features in home loan applications, and to consider any financial incentives, such as green mortgages, that may be used.

We found:

  • The banking, insurance or valuation sectors are not recording integrated features in any systematic way. In addition, banks are generally not recording such features in home loan applications, as they assume they will be reflected in valuations
  • However, the valuation sector currently has no mechanism for effectively recording building features that exceed minimum standards – they may be noted in reports but the information is not added to specific fields in databases. Property valuers are unable to inspect structural features so are also limited in what features they can note in these reports
  • The majority of home loan providers would offer financial incentives if incentivised or subsidised to do so by Government, or if improved energy efficiency could contribute to their own criteria for loan approval, such as increased serviceability or decreased default risk
  • Stakeholders indicated that having a single consistent benchmark or measure that was defined and mandated by legislation, particularly around energy efficiency would create some clarity for them and for home buyers. 

To read the report, click here.