Subsidised home energy loan conditions change from September – who will be eligible?

The start of school coincides with changes to the terms of the subsidised home energy loan package, one of the government’s key tools to kick-start household energy improvements. There would be demand for energy efficient homes: as several surveys show, making homes energy efficient is a priority for Hungarians. The question is rather whether subsidised loans are attractive enough for homeowners, whether they are living in a family house or in a condominium or housing association, to use this money to renovate their homes. There are no official figures yet on how popular the loan scheme has been so far, how many people have applied for it and how much they have been successful. At stake is HUF 115 billion and the energy efficiency of tens of thousands of households.

The aim is to promote residential energy efficiency

According to the product specification, the government wants to achieve the energy efficiency renovation and renewable energy supply of 21,853 households from the 115 billion HUF budget of the European Regional Development Fund. Based on the indicators indicated, the aim is to generate 1.99 Petajoules (PJ) of renewable energy per year from the household investments made with the loan, and to reduce primary energy consumption by 2.15 PJ per year. The success of the programme would be all the more important as Hungary has committed to achieve a total of 154 PJ of cumulative final energy savings between 2014 and 2020 as part of its EU obligations, and household savings are essential to achieve this.

The last date to apply for a loan under the loan scheme is 31 December 2022 and the last date to make payments to final beneficiaries under a loan agreement is 31 December 2023. The loan scheme was launched in April this year, with changes to clarify and make more favourable the terms of the loan scheme.

There are two interlinked questions to consider in relation to the loan scheme: whether the terms and conditions of the loan scheme are attractive enough to attract households and housing associations. And whether the loan alone (without the grant) is attractive enough to trigger mass energy investment.

“Free credit” – attractive enough to take out?

In the 2014-2020 EU programming cycle, an innovative energy efficiency financing product for Hungarian households, including a combination of non-reimbursable and reimbursable funds, was to have been developed under the operational programmes adopted in February 2015, with a total budget of over HUF 200 billion. Unfortunately, by proposing the reallocation of non-reimbursable funds in summer 2016, the Government not only removed the non-reimbursable leg from the innovative financing product, but also halved the amount of funding.

The loan structure seems attractive: interest-free loans can be taken out with 10 percent own resources specifically for energy improvements. With a maximum maturity of 20 years, HUF 10 million can be requested for detached houses and HUF 7 million per apartment for condominiums. The lower limit of the loan is HUF 500,000. No collateral is required up to HUF 2 million. If the loan amount exceeds HUF 2 million, under the amended conditions, up to 50% of the loan amount must be secured by natural persons and a second mortgage can be registered on the property. In the case of housing associations, the required coverage is 20 percent of the loan amount.

One of the most important positive changes in the interest rate subsidised loan scheme refers to the possibility of combining the loan with a non-reimbursable subsidy. As of 1 September, the concept of own resources has been introduced instead of co-financing, which can include both own resources and state aid.

It is also a good trend that the loan scheme allows savings in a housing savings account, plus state aid and deposit interest, to be used to prepay or repay the remaining part of the loan.

It is also positive that the amended conditions have eased the mortgage and security conditions for housing associations (condominiums and housing cooperatives). However, the collateral requirement of 20% of the loan amount appears to be less favourable than market practice* for housing loan and savings (LTP) schemes. This is likely to discourage housing associations from taking out loans.

The amendment to the loan scheme contains many technical and conceptual clarifications, which will hopefully simplify the – already difficult – task of those considering taking out a loan. However, some of the attractive terms and conditions may still discourage people from applying for loans.

One of the most important of these – which also occurs when the loan is taken out by an individual or a housing association – is that the loan becomes “quasi” post-finance in practice. Only after the full use of own resources, against an invoice for the product or service, is the bank or financial intermediary** paid. This is true even if it is the final beneficiary (i.e. the borrower himself) or if it is supplier financing. This rule presupposes that the renovator is able to finance a significant part of the investment from his own resources, because of the expected bank processing times. This is particularly true for private building renovation.

Another condition that may cause problems in several respects is that the procedural regulation requires that the eligible labour costs for the works should not exceed 60 % of the eligible material costs. The labour costs may therefore not exceed 40 % of the total investment. However, current market developments show that labour costs have increased more than material costs, which may even result in the condition that the full amount of the labour costs will not be eligible. This could, despite the best intentions of the contracting authority, reinforce the black market.

The condition on the ratio of material costs to labour costs may also have a significant impact on the required own resources ratio. The existence of only 10 % own resources in the product specification may seem an attractive condition. However, if one takes into account the practice that contractors usually request the material cost as an advance, it can be deduced from the above that an own resource much higher than 10 % is required to pay this advance.

Because of these two problems, it is likely that only those with a much higher own contribution than the minimum required will be able to complete a project without temporary financing problems. However, MEHI’s experience shows that this is unfortunately an insurmountable challenge for the majority of Hungarian households and calls into question the original purpose of the loan product: to encourage energy efficiency investments in households where there is a strong need but little or no resources.

MEHI’s bridging proposal would be a 25-30% down payment, but unfortunately this has not yet been introduced.

Can energy efficiency investments that reduce bills be launched on a massive scale only with loans?

Unfortunately, MEHI’s household surveys, going back several years, still show that credit-only schemes – even if they are offered with interest rate subsidies – are less attractive to Hungarian households. Loan-only schemes are unlikely to trigger a wave of renovation (a complex renovation of over 100,000 units per year would be needed to stop the ageing of the housing stock) for a number of reasons, including the system of subsidies that have been operating independently, the continuing mistrust of the lending market, the reluctance to mortgage, the weak creditworthiness of Hungarian households and the lack of savings.

The government currently operates several, hitherto independent, forms of support for household energy efficiency. These include the Home Warmth sub-programme of the Home Energy sub-programme, the Home Savings Scheme based on early savings, and the interest subsidised loan scheme.

However, the separate operation of the subsidy, savings and loan schemes partly undermines each other and partly makes it more difficult for renovators. The LTP offers better conditions than the subsidised loan because of the 30 percent state subsidy, but it is linked to pre-savings and there are no energy requirements attached (changes in the loan scheme may partly solve this problem for individuals). And those waiting for a warm home prefer not to start loan-based investments while they can hope to get a subsidy to accompany their energy efficiency renovation. And if a renovator wants to use more than one source, they have to apply for each one separately, which is a lot of paperwork and therefore a strong disincentive.

In view of the above, it would be very important to harmonise the rules and resources for the various forms of support and to create coherence, ideally by creating a single gateway.

Hungarians should make their homes energy efficient

According to a survey conducted by the Hungarian Energy Efficiency Institute at the end of 2016, 24% of Hungarian households have recognised the potential of energy efficiency investments to reduce their energy bills.920 thousand households would like to carry out some kind of energy-saving renovation of the house they live in over the next five years.

The overwhelming majority (84%) say that lack of money and scarcity of incentive subsidies are obstacles to renovation.


* Commercial banks can provide loans to housing associations with up to 10 per cent co-payment – sometimes with no co-payment – at very low interest rates. Typically, this is based on the condominium itself having a housing loan contract, but also on a separate LTP contract for each sub-deposit, which is discounted for the condominium. This gives the lender enough security to finance the investment, even at a very low interest rate, without imposing a higher common cost burden on the community due to the increased coverage level requirement.

** As a condition of disbursement, the Client’s Drawdown Notice, including the invoices issued for the relevant Settlement Period, must be delivered by the Final Beneficiary to the Intermediary no later than 10:00 a.m. on the 10th Business Day prior to the disbursement date specified therein (and no later than the expiration of the Availability Period).

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