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French Energy-Efficiency Law For Real Estate: What It Means For French Mortgages

Villa in France
PRINCIPAL REPRESENTATIVE

Monica Bisci

A law has been introduced in France that requires that the energy efficiency of a building is measured in a standardised way. All French real estate assets fall within the scope of the law and, notably for owners or anyone interested in buying French property, the law covers both commercial and residential real estate and other types of property. 

The law has come into force as France looks to become more sustainable and eco-friendly, and the law is part of France's objectives to meet the five Sustainable Development Goals for the Planet, which are part of the UN 2030 Agenda. Under these goals, France has committed - amongst other goals - to fighting climate change. The law focuses on the idea that measuring a building's energy efficiency allows interested parties to understand how much energy the building uses and how environmentally friendly it is. In this respect, the law has practical and sustainable applications for interested parties like prospective owners. 

From a practical perspective, the information supplied under the law on a building's energy efficiency gives specific insight into how much energy the building uses, how efficient that use of energy is (and by extension, what that energy is likely to cost, although this doesn't have to be noted), what energy the building runs on, and so on. The information given under the law also provides insight into the energy efficiency of the building and, therefore, how sustainable and eco-friendly it is. This factor is increasingly important for owners who want to understand their impact on the planet in addition to efficiency and cost factors. Financiers like banks and other lenders and other relevant parties, like insurers, are also impacted - and interested - by a building's energy efficiency. These institutions increasingly have to report on their environmental impact and also want to ensure they are operating responsibly from a sustainability perspective. The overall valuation of a real estate asset also plays a part: a more energy-efficient building typically represents less risk to a lender as this - along with other factors - will contribute to it being a better-quality asset, for example.

French Properties

France is famed for its real estate and prime property markets like the Cote d'Azur, Paris and the Alpes. While there are energy-efficient new builds aplenty, much of the most desirable French real estate is historic or was built several decades ago before energy efficiencies were what they are today. The result is that there are many properties in France - from ultra-prime real estate to middle-market properties - that have very considerable energy consumption and could be more efficient by today's standards. 

The French government is looking to raise awareness of poor energy efficiency in properties to instigate investment into more efficient fuel use or switch to renewable fuel sources. One of the most effective ways of implementing these changes is to put pressure on owners or buyers to do this by linking energy efficiency to ease of accessing finance rather than through the implementation of a law that requires properties to run on certain systems or meet specific energy targets, which are challenging to implement, measure, enforce and for which some owners do not have the necessary funds to achieve. 

Energy Efficiency Law

France's law requiring buildings can verify their energy efficiency means that lenders can use these measurements to impact what they will offer in terms of:

  • Overall finance amount 
  • The rate the lender will offer 
  • Loan to value ratio of the mortgage
  • Contractual requirements to improve the energy efficiency of a building (usually to a certain rating). In many cases, this will be a prerequisite to accessing finance.

The energy efficiency of a building now impacts the valuation of a building in France more often than before, which has a knock-on effect on finance and mortgage options. As part of the underwriting process, the lenders that offer French mortgages (including banks that finance prime and ultra-prime property) are increasingly likely to 'downgrade' properties with low energy efficiency ratings, resulting in a lower valuation than would otherwise have been the case. As a result, it can mean that you won't be able to borrow as much as you want against the cost of a French property, or you may have to pay a higher interest rate. 

Some lenders will no longer lend against 'low efficiency' properties, and many lenders will have fixed criteria for the efficiency of real estate they will or won't finance. At the top of the market, some lenders will decide on a case-by-case basis if they will finance a low energy-efficient property, usually considering the type of real estate, location and your profile as a borrower. 

Increasingly, banks will also require that an incoming buyer will contractually commit to making specific energy-efficient improvements to the property that have to be completed by a particular date as a condition of finance or a mortgage. Any work that needs to be carried out will be controlled carefully by the lender to ensure the conditions have been met, and there can be significant penalties if the work isn't carried out in line with agreed specifications or on time. In some cases, this may include the lender requiring that the mortgage is repaid in full with immediate effect if they find the borrower in breach of their obligations. 

How Enness Can Help?

France has many superb high-value properties, and many are historic buildings that could be more efficient in terms of energy consumption. Not financing these property purchases at all wouldn't make sense for the niche players and private banks that specialise in funding top-of-the-market purchases, as it would lock them out of the prime market. So, while financing can be harder to secure in non-energy efficient property purchases, it is still possible. 

Even if the property you want to buy is not especially efficient, lenders will usually consider you for a prime or ultra-prime French mortgage if your financial profile fits borrowing. However, it is increasingly worth considering how you will make a case to lenders if you want to buy such real estate - in most cases, lenders will need to see a quality asset that can be improved, especially when they consider asset appreciation and future sale price, given properties that are not efficient may become harder to sell.  

Detailing any future work you plan to take out on the property to improve energy efficiency or reduce the running cost of the building by improving the property's infrastructure will support your case. However, at this level, it is rarely a case of simply explaining your plans to your lender. 

As an expert high-value French mortgage broker, we can explain your plans to lenders carefully, making introductions to lenders that we know have an appetite to finance properties that may not have good energy efficiency ratings. We will provide lenders with details of plans, financing and the right supporting documentation that lays out how you will finance the work and what impact it will have on the property, its valuation and future energy efficiency rating. We will also work to maximise how much you can borrow and get the best deal available, whatever the energy efficiency rating of the property you want to buy.  

This guide is for information and illustrative purposes only and nothing contain within should be construed as advice or a recommendation.
Financing options available to you will depend on your requirements and circumstances at the time. Any changes in your circumstances, any known likely changes, or omissions in the information you provide can affect the suitability of the options available to you. These should be communicated to us as early as possible.
If you are considering securing debts against your main home, such as for debt consolidation purposes, please think carefully about this and consider all other options available to you.
Your home may be repossessed if you do not keep us repayments on your mortgage or other debts secured on it.
The views and opinions expressed in this piece are those of the author and do not constitute advise or a recommendation