Making older houses more energy-efficient is crucial in fighting climate change.

But most homeowners would rather spend their renovation money on style than efficiency. What can we do to change that? Frontier’s economists in Spain, where energy-efficient housing is a pressing challenge, teamed up with CaixaBank to design a mortgage product that could encourage greener choices.

The problem with older houses

Energy efficiency is fundamental to modern house building. But many of us live in houses built decades ago, before regulations and targets existed, and before environmental impact was considered an important issue.

Improving the energy efficiency of older houses is therefore a key battle in the war on climate change. Small changes – like insultation or double glazing – to millions of houses could make a significant difference to emissions.

Spain: a unique context

In Spain, two trends converge: a high proportion of older housing, and an even higher percentage of multi-dwelling buildings.

Half of the housing stock in Spain was built prior to 1980, before energy efficiency laws existed. And 68% of homes are in multi-dwelling buildings, like apartment blocks – compared with, for example, 22% in England & Wales.

Why do apartment blocks present a challenge? When several people are required to consent to a renovation, it creates a barrier to action. The task can seem too difficult or overwhelming, so nothing is done.

As a result of these combined trends, 9 out of 10 homes in Spain have an energy rating of E or lower.

Figure 1 Number of housing units by type and year of construction, 2020

Source: Frontier Economics according to ‘Estrategia a Largo Plazo para la Rehabilitación Energética en el Sector de la Edificación en España, 2020’. Ministry of Transport, Mobility and Urban Agenda.

Behavioural barriers

Improving the energy efficiency of Spanish housing requires homeowners to act. But there are behavioural barriers.

Energy-saving renovations are functional rather than desirable. Most of us would love a stylish new kitchen, but who dreams of cavity wall insulation? When spending money on renovations, we tend to prioritise comfort and style over practicality and efficiency.

People also lack knowledge about which changes to make and the impact they’ll have. Even when long-term savings are likely to outweigh upfront cost, most people are reluctant to spend. We only change our boilers when they break down – not because we know a more energy-efficient model will save us money in the long term.

The window of opportunity

To understand these barriers and how to overcome them, Frontier’s economists in Spain worked with CaixaBank to carry out behavioural analysis.

The team identified a window for action: to incentivise homeowners at the moment when renovations are most often carried out, right after purchase.

How could the bank target new buyers in this window and incentivise them to spend money on green improvements?

Figure 2 Factors influencing the decision process

Source: Frontier Economics

CaixaBank’s innovative mortgage

Frontier and CaixaBank identified the perfect product for innovation: mortgages.

The result is CaixaBank’s Hipoteca Eficiente (Efficient Mortgage), which offers financing to customers for eco-friendly renovations. The bank covers up to 80% of the cost of any green improvements a customer makes to their house, with that loan becoming part of the overall mortgage. To incentivise customers to act as soon as they’ve purchased, the mortgage offers a six-month initial grace period on repayments.

CaixaBank also does the work of managing any subsidies customers are entitled to, as well as obtaining energy efficiency certificates. A premium level of the product, Efficient Mortgage Plus, features a ‘turnkey’ service, where the bank manages the renovation project for of the customer.

Encouraging results

There have been positive results since launch, with 5,000 people per month registering an interest on CaixaBank’s website and applications reaching 100 per month.

These numbers are likely to grow. In May, the European Commission issued Energy Efficiency Directive 2024/1275. It requires Member States to work with financial institutions to provide incentives for green housing renovations. As part of this, the Commission will adopt a framework to increase the volume of loans related to energy targets. This proves Caixa is moving in the right direction.

Towards sustainable housing

To date, so-called ‘green mortgages’ have been focused on financing new energy-efficient housing. But the real challenge lies in improving the efficiency of millions of existing buildings.

CaixaBank’s product helps to do this. It offers a triple benefit: helping consumers get the home they want, allowing the bank to reduce the carbon footprint of its investments, and promoting green improvements in Spain’s housing stock.

The initiative, fuelled by Frontier’s expertise in behavioural economics, is an important move towards sustainability and environmental responsibility in the financial and residential sectors.