The Impact of the Energy Score on Your Loan

Planning to take out a loan for your new home? Then you’d better pay attention to the energy score of the property. Since last year, banks are legally required to check the energy score, provided by the EPC certificate, when applying for a mortgage. But what does this mean for your loan, and how does the energy score affect your property financing?

What is the Energy Score and Why is It Important?

The energy score of a property is determined by the Energy Performance Certificate (EPC), which indicates the energy efficiency of the building. The better the score, the less energy is required to heat the property, which is not only better for the environment but also for your monthly bills.

However, banks are increasingly considering the energy score when deciding whether to approve a loan. Buyers of homes with poor energy efficiency might face more hurdles when applying for a mortgage in the future.

Banks and the Obligation to Check the EPC Score

Since last year, banks are legally obliged to request the EPC score when applying for a loan. The reasoning behind this is simple: homes with a low energy score could decrease in value, especially if too much is paid for the property. If a borrower is unable to repay the loan, the bank could be left with a loss. This risk increases when the property is not energy efficient, as the owner faces higher energy costs, which may lead to financial difficulties.

The issue has become even more pressing with skyrocketing energy prices. Households with a less energy-efficient home are hit harder by rising costs, which increases the likelihood of loan repayment problems—putting the bank at risk.

Does a Poor Energy Score Affect Loan Terms?

Despite the increased focus on energy efficiency, the National Bank has stated that the goal is not to make loans more expensive for energy-hungry homes. The primary goal is to limit the risk for banks. However, banks still have the discretion to refuse a loan or adjust terms based on several factors, including the EPC score. In this regard, the energy score could become an important factor in whether your loan is approved, but it is not the only one.

Borrow More to Renovate: A Possible Solution?

There are currently calls for allowing higher loan amounts for homes with a poor energy score. This would enable buyers to borrow more to immediately renovate their energy-inefficient property. However, this proposal has little support from the National Bank, which sees such measures as increasing the risk for banks. Borrowing more money is viewed as a higher financial risk, especially if the home remains energy-inefficient even after renovation.

What Does This Mean for Your Future Mortgage?

It is still unclear whether it will become harder to secure a loan for a property with a poor energy score in the future. What is clear, however, is that the focus on energy efficiency is becoming more important in the decision-making process for banks. When purchasing a home, it’s wise to not only consider the price but also the energy score. If you’re looking at a property with a poor score, it might be a good idea to also plan for renovations.

Conclusion

The impact of the energy score on your loan is increasing. Banks are required to check this score, and a poor score could make it more difficult to get your loan approved. While the intention is not to make loans more expensive for energy-inefficient homes, the energy score will certainly play a key role in securing financing. Keep this in mind when purchasing your home, and consider energy-saving measures or renovations to improve both the value of your property and your loan approval.