Identifying Financial Incentives for Green Housing Loans in Low Interest Margin Environments

The purpose of this study was to identify financial incentives for consumers in low interest margin housing loan markets, such as Finland, for green housing loans, including both green mortgages and renovation loans. Although green financing is well-researched, the financial viability of green housing loans under the EU Taxonomy as a sustainable financing framework remains underexplored. EU’s revised Energy Performance of Buildings Directive sets Minimum Energy Performance Standards for expediting the decarbonisation of European building stock, with households playing a key role through energy-efficient renovations. The research design comprises two parts: developing a literature-based framework of financial incentives for green housing loans, followed by empirical validation through a stakeholder workshop. The study proposes six financial incentives for consumers regarding green housing loans: 1) margin discounts 2) fixed discounts 3) increased collateral value 4) inexpensive renovation loans 5) guarantees and 6) other incentives like interest subsidy or retailer partner financing. The study suggests that renovations towards EU's climate targets can substantially be enhanced by aligning government subsidies, tax-related incentives, and grants to green financing. The study concludes that key industry stakeholders regard consumers to prioritize financial incentives, which are challenging to identify in low interest margin environments like Finland, and that both green housing loans and public schemes are needed to drive renovations effectively to align with EU’s climate targets. Future research should examine financial incentives across EU countries to assess the impact of national policies on green financing to help creating a harmonized EU definition for green mortgages and loans.