Funding energy efficiency in EU housing: the role of borrower-based measures

Buildings account for approximately 40% of the EU’s total energy consumption and around one-third of its energy-related greenhouse gas emissions. Therefore, if the EU’s climate strategy is to succeed, it will need to improve the energy performance of Europe’s building stock. The task is particularly urgent given that 75% of the building stock is energy-inefficient, and nearly one-fifth of the EU population live in homes that are not comfortably warm in winter.

This policy brief draws on new research covering Slovakia, Latvia and Hungary to explore how borrower-based measures (BBMs) can support energy-efficient renovation. The authors argue that significant increases in renovation finance need not involve a trade-off with financial stability.

Core insights

European policymakers should recognise that:

• Loans for energy renovations have lower default probabilities and increase property values. BBM limits that do not account for this are systematically misspecified for such loans.
• Adjustments to BBMs in Slovakia, Latvia and Hungary that followed a risk-neutral approach made no material change to credit portfolio risk.
• There is a need to regularly review the calibration of BBMs, building on the methodological templates established by early-mover countries.
• BBMs help preserve financial stability but can inadvertently restrict renovation lending.
• Barriers to the growth of green loans outside the BBM framework can dampen the effectiveness of such measures.
• The European Systemic Risk Board is well-placed to develop guidance and a monitoring framework that would help all EU Member States implement risk-neutral BBM adjustments.
• The impact of BBM easings could be enhanced by a broader policy package involving fiscal incentives, administrative simplification and public outreach.