Energy efficient Mortgages Action Plan (EeMAP)&

Energy efficiency Data Protocol and Portal (EeDaPP)

Andrea BedinResearch Assistant at Research Center SAFE

Energy efficient Mortgages Action Plan (EeMAP)Motivation

EU: building stock is the largest single energy consumer in the EU

40% of total energy consumption, 36% of CO2 emissions

about 35% are over 50 years old, 75-90% predicted to remain standing in 2050

EU set energy savings targets for 2020 and 2030 and a long-term 2050 greenhouse gas reduction target

Potential: by improving the energy efficiency (EE) of buildings, the EU’s total energy consumption could be reduced by 5-6% and CO2 emissions by 5%

Current state: only a fraction of bank lending and funding is explicitly classified as green

Challenges: lack of standardization (in terms of reporting definitions and dynamic datasets) hinders transparency, viability and risk assessment and is thus a major obstacle to the development of the market

There is a huge potential to bridge financial innovation and the EE world and to unlock the benefits of mortgage financing to support EE

EeMAPGoal

The EeMAP Project intends to deliver a standardised framework to stimulate EE investment by households through private bank financing

A framework

for a building energy passport, recording the EE history of a property by recognising the improvements made

that can integrate the “green value” of a property through EE and collected market data (probability of default, loss given default)

for an EE mortgage product (green covered bonds)

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EE Renovation

Energy efficiency advisor (EEA) to advise on:1. Necessary EE

renovation2. Complementary

funding sources (subsidies)

Mortgage application

Before EE Renovation

SME carries out EE renovation, guaranteeing performance

After EE Renovation

Bridging Renovation Gap - In Practice

Mortgage granted & EE top-up provided directly to SME

Ex ante Valuation of property

Qualified SME selected by bank to carry out EE renovation

Bank grants preferential interest rate on mortgage based on EE/smart meter

EEA certifies EE renovations in line with EE requirements

Ex post valuation of property

Underlying risk parameters impacted by EE

Renovation impacts positively on property valueensuring wealth conservation & loss mitigation bypreventing “brown discount”

EE leads to a reduction in the impact of energycosts to income, reducing borrowers‘ probabilityof default

Objective & Underlying Business Case

The ultimate objective is a pan-European private bank financingmechanism, based on a standardised approach, to encourage energyefficient improvement by households of the EU’s housing stock by way offinancial incentives linked to the mortgage, and in this way support the EUin meeting its energy savings targets.

Independent from, but complementary to, public funds or tax incentives

Underlying business case

Methodology - Financing mechanism

Key challenge: to incentivise energy efficient investment in existing dwellings, whichconstitute bulk of EU housing stock

Based on a set of EE indicators, lenders could offer: New Builds: Discount in interest rate for new builds with energy rating A+/A or B; Existing property: Discount in interest rate according to improvement in energy rating

of property between D and A/A+

Energy efficient Data Protocol and Portal (EeDaPP)

The EeDaPP Project intends to deliver large-scaletechnical and financial data related to energyefficient mortgages by way of a standardised dataprotocol to be accessed through a common,centralised portal. Three key outputs will be:

Definition of specific reporting criteria

Design of the standardised protocol for the

processing and disclosing of data

Design of a centralised portal

Goal: Analysis of the correlation between buildings’ energy efficiency and borrowers’ default probability

Motivation: The cornerstone of the project is the assumption that energy efficiency has a risk mitigation effect for banks as a result of the impact on a borrower’s ability to service his debt

Main challenge:

Data availability: lack of data that links energy efficiency information with loan’s performance and borrower’s characteristics

Inconsistent definition of EE across and within EU countries

No standardized framework for data collection at mortgage origination

Short sample history

Access to available data

UK: English housing survey

Belgium: Green mortgages originated between 2009 and 2011

Netherlands

Effect of EE on Mortgage Performance

European DataWarehouse: loan-level data without direct EE information Solution: use EE proxy Netherlands: provisional EE classification table issued by

Netherlands Enterprise Agency

Effect of EE on Mortgage Performance

Percentage of defaults increases with lower EE-rating

EE mortgages seem to survive for a longer time period

Effect of EE on Mortgage Performance

Logistic Regression

Effect of EE on Mortgage Performance

Thank you !