Japan to require homes to meet energy-saving standards to qualify for Flat 35 Mortgages starting April 2023

Starting in April 2023, Japan will introduce a home energy-saving requirement to the popular Flat 35 home loan program.

This measure will be introduced two years ahead of the already announced energy-saving standards that will be mandatory for all new buildings built in Japan starting in 2025. The government aims to incentivize home owners to be more proactive in helping to reduce greenhouse gas emissions, as households have lagged behind the industrial sector in cutting back on CO2 emissions.

Flat 35 loans are overseen by the Japan Housing Agency (JHA), an independent administrative agency under the jurisdiction of the Ministry of Land, Infrastructure, Transport and Tourism. Through participating banks, the JHA gives loans of up to ¥80,000,000 (about $554,000 USD @ 144.6 JPY to USD) for consumers to buy new or previously owned homes.

Flat 35 loans are very popular because, as the name suggests, these types of loans offer flat monthly payments over a period of 35 years at a fixed interest rate of about 1.5%. Flat 35 loans account for about 10% of all home mortgages in Japan. In fiscal 2021, there were about 72,000 issued for a total of 2,212.7 billion yen.

Starting next April, loans for newly built houses will be limited to properties that meet certain standards for insulation performance and primary energy consumption based on the Housing Performance Index System. According to the Ministry of Land, currently, just under 20% of newly built houses do not meet the energy-savings standards.

Ahead of this, starting in October, the JHA will reduce interest rates by up to 0.5% for homes that are certified as Zero Energy Houses (ZEH), which have high energy-saving performance and almost zero energy consumption. In addition, Flat 35S loans are offered for houses that comply with very high energy-saving standards; these loans have fixed interest rates as low as 0.25%.

According to the Ministry of the Environment, in fiscal 2020, CO2 emissions from households in Japan increased by 4.5% year-on-year, which lagged behind improvements made by the industrial sector. In order to achieve Japan’s goal of net zero greenhouse gas emissions by 2050, energy-saving houses are essential.

The challenge is existing homes, of which there are about 50 million units nationwide. Only about 10% of these meet energy-saving standards. The Ministry of Land plans to establish a loan system for energy-saving renovations of existing houses in October. The government will lend a maximum of 5 million yen to help home owners repair insulation in detached houses and condominiums and to install energy-saving equipment. Since there are few private-sector housing loans for home repairs, this public financing will be key to helping people upgrade their homes.

Starting in fiscal 2025, Japan will require newly built  houses and small buildings to meet energy-saving standards such as insulation performance. The goal is to reduce energy consumption by 20% for new homes and by 30%-40% for buildings, but the standards are lower than those in Europe and the United States.

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Source: Nikkei newspaper, September 29, 2022 (in Japanese)

Photo credit: iStock/Orthosie

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