Energy efficiency as a factor in the pricing and structuring of mortgage loan products for residential properties

Energy utilization of buildings account for 40% of energy used in the European Union. Buildings’ energy efficiency can help to improve the situation and lower risk for borrowers and lenders. The author aims to point out impacts of energy efficiency on credit risk and how lenders can account for it.

Michel Geiger, 2018

Bachelor Thesis, Raiffeisen Switzerland
Betreuende Dozierende: Urs Dreier
Keywords: Energy efficiency, credit risk, energy efficient mortgage, building energy retrofits, energy consumption improvement
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Mortgage loans in the European banking sector sum up to approximately one third of total assets. Thus, the condition of the financed building stock is a crucial risk factor for borrowers. Environmental policies try to boost private investments in order to decrease carbon related emissions and improve energy inefficient buildings, however convincing data and efficient measures are missing. Thorough explanations on the relationship between energy efficiency and credit risk should help to overcome investment barriers and open paths for more sustainable financing of the European building park.
Existing literature and data on energy efficiency is consulted in order to gain insights into the status quo of investigations and further research possibilities in this area. More, data from Raiffeisen Switzerland is gathered and evaluated by the means of an ordered logistic regression so that relevant statistical outcomes can be derived, and comments can be made on the influence of energy efficiency on the credit rating. Results are then used to make recommendations on possible implementations of energy efficiency as a factor into existing frameworks and practices at Raiffeisen Switzerland.
The data shows a statistically significant positive relationship between energy efficiency ratings of buildings and the internal credit rating of Raiffeisen Switzerland. Regression outcomes prove risk mitigating effects and results derived from Chi-square tests show moderate correlation between independent and dependent ordinal variables. Thus, the author suggests to implement standardized energy efficiency assessments of buildings alongside periodic new approvals of residential mortgage loans. Possible risks arising through energy efficiency issues could be detected early and rectifying investments and retrofits could be undertaken in a timely manner. More, energy efficiency status of buildings would be up to date, carbon related emissions could be lowered and dependency on non-renewable energy sources could be diminished. More, the author suggests to gather various data on energy consumption behavior of occupants and performance data of heating systems. This should be done in order to broaden available data for future research and have convincing argumentations to foster sustainable maintenance of buildings and further develop new investments in energy efficiency measures.
Studiengang: Business Administration International Management (Bachelor)
Fachbereich der Arbeit: Banking & Finance
Vertraulichkeit: vertraulich
Art der Arbeit
Bachelor Thesis
Raiffeisen Switzerland, St. Gallen
Autorinnen und Autoren
Michel Geiger
Betreuende Dozierende
Urs Dreier
Sprache der Arbeit
Business Administration International Management (Bachelor)
Standort Studiengang
Energy efficiency, credit risk, energy efficient mortgage, building energy retrofits, energy consumption improvement