Upgrading housing: the potential and limits of borrower-based measures

In this paper, we explore how borrower-based measures (BBMs) can be adjusted to provide additional funding for housing-related energy-efficiency investments without compromising financial stability objectives. We first show that lower energy costs and higher house price values resulting from renovation work allows an easing of borrowing limits while keeping loan risk metrics unchanged. We then focus on three recent easing measures implemented in Slovakia, Hungary, and Latvia and assess their effectiveness using a bank survey. We find that these policy changes did not significantly affect banks' credit portfolio risk profile and thus financial stability. At the same time, they did not generate a significant increase in loans for energy-efficient investments. We thus suggest combining BBM adjustments with other policy measures to improve energy-efficiency in real estate.

JEL codes: C8, E44, E50, G21

Keywords: housing renovation, borrower-based measures, green loans