AFM Guidance on Tailored Mortgage Advice for Energy-Saving Measures

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AFM provides guidance for tailored mortgage advice for certain energy-saving measures Additional mortgage credit for energy-saving measures with tailored advice is possible.
The government stimulates the sustainability of the owner-occupied home. The AFM endorses the necessity of this. The sustainability of a home can be financed from own funds or by taking out a loan. For this, a consumer credit (a personal loan) can be taken out or an additional mortgage credit. The government, however, subsidizes a number of loans, which can be attractive for consumers. In 2021, it was made easier to increase a mortgage credit without advice for certain energy-saving measures up to €25,000. However, not all consumers are able to take out an additional (second) credit on the existing mortgage without tailored advice. Because information previously collected when taking out the existing mortgage can be used, a full advice is not necessary in all cases, and a (cheaper) tailored advice can suffice. This tailored service is discussed below. Introduction As stated above, in 2021 it was decided to make it easier for consumers to take out an additional mortgage credit of up to €25,000 without advice, which is exclusively used for financing designated energy-saving facilities in or on the home1. For this purpose, since 2021, under certain conditions, the knowledge and experience test is no longer applicable2. The characteristic of the designated energy-saving facilities is that the costs of these loans are often earned back within fifteen years. In the explanatory memorandum accompanying the amending decree regarding the deletion of the knowledge and experience test when installing energy-saving facilities3, without advising the customer, the Minister of Finance promised, following various consultation responses, to investigate whether advice could also be introduced where less information is requested from the customer (tailored service) for determining the maximum credit for sustainability. KPMG conducted research on this on behalf of the Ministry of the Interior and Kingdom Relations (link to KPMG final report: Final report research - 'Shortened mortgage advice for sustainability' | Report | Rijksoverheid.nl. 1 As mentioned in Article 1, part b, of the Temporary Regulation on Mortgage Credit. 2 Article 80e of the Decree on Conduct Supervision of Financial Undertakings Wft. 3 Decree of 5 March 2021 amending the Decree on Conduct Supervision of Financial Undertakings Wft in connection with the deletion of the knowledge and experience test when installing energy-saving facilities (Srb. 2021, 129).

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The research provides insight into the possibilities to save time in mortgage advice for sustainability, thereby enabling consumers who want to make their homes sustainable to receive responsible and affordable advice.
KPMG Research
In the KPMG research, tailored service was also tested in practice. The starting point was that the advisor gives the consumer a new mortgage advice where previously provided information by the customer can be used. The limited process steps can lead to time reduction for the advisor and can lead to cost savings. AFM's response to the KPMG report The AFM endorses that tailored service can be in the customer's interest and that this can satisfy the duty of care as intended in the Wft. Tailored Service If you wish to use tailored service in the advice on the mortgage financing of energy-saving facilities, you must first determine whether the customer needs such tailored advice and whether the tailored advice is in the customer's interest. When tailored service is suitable for the customer, you must in any case determine that the mortgage loan for the energy-saving measures and related work falls within the maximum credit in relation to the value of the home (LTV) and furthermore that the financing costs are not higher than the permitted financing costs as intended in the Temporary Regulation on Mortgage Credit. Furthermore, you also determine the customer's current financial position and determine whether the increase in the mortgage is responsible and therefore affordable for the customer now and in the future (taking into account, if relevant, pension income). You then do not need to ask for all matters again. Depending on the specific case, you can think of, for example:

• The customer's knowledge and experience (it concerns an increase of a previously taken out mortgage);
• The customer's objectives (the customer wants to become sustainable);
• The customer's risk tolerance;
• The family composition;
• The inventory of the home (up to 90% of the value of the home can use a model-based valuation as mentioned in the Decree on Conduct Supervision of Financial Undertakings Wft);
• Future perspective;
• Wealth accumulation; and
• Risk insurance.
  You may also use information previously collected by other mortgage advisors when taking out an earlier mortgage if that information is sufficiently current and informative4.
  4 This is separate from any civil law aspects. The AFM does not deal with this.

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It is up to you as an expert advisor to assess whether certain topics should be asked for further. For example, if the customer fully covered the death risk when taking out the existing mortgage because he is a single earner and wants to protect his partner from a residual debt upon death, you must check whether the customer wishes to maintain this full coverage given the increase in the mortgage loan. You therefore assess whether it is necessary to request additional information, taking into account the specific customer situation. You make it clear to the customer what you do not (re)ask for, point out the possible consequences, and provide the customer with the agreements made and record this in the customer file. You then proceed through the steps for advice as usual. Tailored service can lead to cost savings without compromising the quality of the advice.