The purpose is to build a data set which “could support lobbying action to achieve a realignment of capital requirements to reflect a potential lower risk profile,” of energy-efficient mortgages, according to a road map that has been published on the Energy-Efficient Mortgages Initiative’s website.
Some have argued bank risk capital weightings should be altered to give a benefit to green assets, and so-called energy-efficient mortgages are one of the largest and most easily identifiable categories of those. Capital benefits would stimulate banks to finance more energy efficiency improvements, they believe.
While some support the idea and others oppose it, saying bank capital is there to protect the bank against risk and should not be perverted to other ends, there is a common compromise position: that favourable capital treatment should be allowed if green assets can be proved to be less risky.
The new research project is testing two hypotheses: that improving the energy efficiency of a property raises its value; and that borrowers with energy-efficient homes are less likely to default because they will enjoy lower energy bills, and therefore more disposable income.
Data on mortgages originated in line with the framework will be analysed under a standardised protocol and collected in a centralised portal.
Lending institutions will work in conjunction with information technology firms TXS, European Datawarehouse, Hypoport and CRIF — collectively known as the EeDaPP Consortium — to use existing IT systems and keep costs down.
“In this respect, it will not increase the burden for banks, who will simply deliver additional data to their existing data repository,” according to the same website.
EC support
The pilot scheme will be underpinned by a governance structure, to coordinate and advise the participating lenders. It includes a support group, to which the European Commission, European Investment Bank and European Investment Fund are contributing.
Lenders participating in the scheme are expected to set up interdepartmental task forces to assess the feasibility of implementing energy-efficient mortgage frameworks or guidelines.
They will work alongside national coordinators and report to the Energy-Efficient Mortgage Action Plan (EeMAP) Consortium.
The EeMAP and EeDaPP projects have both been funded by the European Union’s Horizon 2020 research and innovation programme.
Market forces can play a role
The announcement comes two days after DNB Boligkreditt issued its first covered bond secured on green mortgages. About half the investors that bought the €1.5bn seven year deal were considered green. They added an extra layer of demand that improved price tension.
The deal was priced at the same spread as a non-green covered bond issued by Norwegian peer Sparebank 1 Boligreditt the day before, which had a maturity two years shorter. Despite the longer duration, DNB's green dealt attracted almost twice as much demand.
It could be inferred from this that lower capital charges are not required to incentivise green mortgage lending. Tighter funding costs in the bond market for deals secured on green mortgages could have the same effect. DNB has recently begun extending green mortgages that cost the borrower 10bp-20bp less than a normal mortgage.