Lenders Should Address Facts About Energy Efficient Homes

If an Institute for Market Transformation (IMT) recently released study has it right, the  mortgage industry should be giving extra considerations to homeowners purchasing Green Energy Star-Certified housing. The IMT study observed real estate, economic, financial and environmental patterns of 30,000 green friendly homes compared to patterns for 71,000 conventional homes. The results are pretty astounding.

Nikhil Kaza, a researcher at the University of North Carolina’s Center for Community Capital discussed the study on March 20th.  The findings are far reaching and indicate that green energy homeowners are not only environmentally aware but are also very responsible borrowers.

All 30,000 “green energy” home designs were at least Energy Star-certified or better.  In the US, that standard alone indicates that  the homes are at least 30 percent more energy efficient than conventional homes. Homes that exceeded the Energy Star-certification are that much more energy efficient.

Kaza said this is the first empirical study of its type, scope and comprehension.  One of the more surprising revelations of the study was that owners of the energy efficient homes are 32 percent less likely to default than owners of conventional homes. This is indeed a significant fact that lenders may want to consider.

This is the first study to correlate energy efficiency and default rates on mortgages.  Kaza said, “We found that Energy Star certification reduces default and payment risk. The more efficient the house, the less the risk is for prepayment and default.”

Among many other things, this study demonstrates that homeowners are saving money on energy and are thus able to continue mortgage payments in hard times. The average cost of energy consumption for a conventional home is $2,200.00. The study indicates that while lenders are formulating the cost of taxes, insurance and financing, they would be well served to consider energy costs, making energy efficient homes more appealing and more easily financed.

One things the study illustrated was that appraisers do not fully understand the merits of energy efficient homes, or the costs of installing energy efficient systems and utilities. The study indicates that appraisers should add value for these improvements but many appraisers do not. It is time for real estate appraisers to become more energy conscious themselves. They must understand the construction costs and make allowances for the sustainable value of the property.

Advocates for revised lending standards for energy efficient homes will  surely point to the data in this comprehensive study.  It is expected that consideration will first be made through federally backed mortgages. It is time for UK lenders to get on board with energy efficiency.


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