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Creditworthiness and buildings' energy efficiency in the Italian mortgage market

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  • Billio, Monica
  • Costola, Michele
  • Pelizzon, Loriana
  • Riedel, Max

Abstract

Energy efficiency represents one of the key planned actions aiming at reducing greenhouse emissions and the consumption of fossil fuel to mitigate the impact of climate change. In this paper, we investigate the relationship between energy efficiency and the borrower's solvency risk in the Italian market. Specifically, we analyze a residential mortgage portfolio of four financial institutions which includes about 70,000 loans matched with the energy performance certificate of the associated buildings. Our findings show that there is a negative relationship between a building's energy efficiency and the owner's probability of default. Findings survive after we account for dwelling, household, mortgage, market control variables, and regional and year fixed effect. Additionally, a ROC analysis shows that there is an improvement in the estimation of the mortgage default probability when the energy efficiency characteristic is included as a risk predictor in the model.

Suggested Citation

  • Billio, Monica & Costola, Michele & Pelizzon, Loriana & Riedel, Max, 2022. "Creditworthiness and buildings' energy efficiency in the Italian mortgage market," SAFE Working Paper Series 352, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:352
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    References listed on IDEAS

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    1. Altman, Edward I. & Saunders, Anthony, 1997. "Credit risk measurement: Developments over the last 20 years," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1721-1742, December.
    2. Min Qi & Harald Scheule & Yan Zhang, 2021. "Positive Payment Shocks, Liquidity and Refinance Constraints and Default Risk of Home Equity Lines of Credit at End of Draw," The Journal of Real Estate Finance and Economics, Springer, vol. 62(3), pages 423-454, April.
    3. Guin, Benjamin & Korhonen, Perttu, 2020. "Does energy efficiency predict mortgage performance?," Bank of England working papers 852, Bank of England.
    4. Xudong An & Gary Pivo, 2020. "Green Buildings in Commercial Mortgage‐Backed Securities: The Effects of LEED and Energy Star Certification on Default Risk and Loan Terms," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(1), pages 7-42, March.
    5. Nikhil Kaza & Roberto Quercia & Robert J. Sahadi, 2014. "Home energy efficiency and mortgage risks: an extended abstract," Community Development Innovation Review, Federal Reserve Bank of San Francisco, issue 01, pages 063-069.
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    1. Justin Contat & Carrie Hopkins & Luis Mejia & Matthew Suandi, 2024. "When climate meets real estate: A survey of the literature," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(3), pages 618-659, May.

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