Homes with better energy ratings may qualify for more favorable mortgage terms, while less efficient properties could face financing challenges.
Researchers interviewed 25 financial and real estate experts to understand how sustainability factors into European property lending.
Flooding, wildfires, and other climate risks could increasingly influence financing decisions, potentially making affordable housing harder to access.
When shopping for a home, buyers usually focus on the purchase price, monthly mortgage payment, and neighborhood. But a property’s energy efficiency could also affect how easily buyers secure financing — and what terms they receive.
A new study from researchers at Aalto University in Finland found that European banks are already considering properties’ energy performance when making lending decisions. Looking ahead, climate-related risks, including flooding and wildfires, could become increasingly important.
The research highlights a growing connection between a home’s environmental performance and its financial prospects. A property with a strong energy rating may qualify for a green mortgage or other financing advantages. Meanwhile, a home with poor energy efficiency could require costly upgrades, potentially making it a riskier investment for lenders.
‘For people taking out a mortgage, or considering buying a home, it is important to understand that the environmental performance of the property already affects banks’ lending decisions and loan terms,’ researcher Seppo Junnila, Professor of Real Estate Economics at Aalto University, said in a news release.
How researchers examined mortgage lending
Published in the Journal of European Real Estate Research, the study explored how sustainability affects residential property financing across Europe.
Researchers Maria Holopainen, Anniina Saari, and Seppo Junnila began by gathering preliminary information through industry interviews and workshops, then compared those insights with existing research to develop questions for further investigation.
They subsequently interviewed 25 lending and sustainability experts from 14 organizations, including 10 banks and four real estate advisory firms. Participants represented Northern and Central Europe, with some specializing in residential mortgages and others in commercial property lending.
The researchers analyzed the interviews alongside publicly available documents outlining banks’ green financing policies. This approach helped them identify common practices, differences between markets, and the factors lenders consider when evaluating properties.
What the findings mean for homebuyers
The researchers found that energy performance certificates, which document a building’s energy efficiency, are already a central part of European green property lending. However, the financial benefits of owning an energy-efficient home vary by market and lender rather than following one consistent formula.
The study also found that banks often favor financing new buildings because they can more easily meet green lending requirements. Older homes that need energy improvements may face a disadvantage, even when renovations could improve their environmental performance.
Climate risks are another concern. Banks are increasingly paying attention to hazards such as floods and wildfires, although their importance varies depending on a property's location. These risks could eventually play a larger role in financing decisions.
For consumers, the findings suggest that a home’s energy efficiency and exposure to climate hazards may deserve closer attention during the buying process. Asking lenders about green mortgage options and researching potential renovation costs could help buyers better understand their choices.