Buildings’ Energy Efficiency and the Probability of Mortgage Default: The Dutch Case

Abstract

We investigate the relation between buildings’ energy efficiency and the probability of mortgage default. To this end, we construct a novel panel dataset by combining Dutch loan-level mortgage information with provisional building energy ratings that are provided by the Netherlands Enterprise Agency. By employing the logistic regression and the extended Cox model, we find that buildings’ energy efficiency is associated with lower likelihood of mortgage default. We also show that energy efficiency provides a further mitigation of default risk for borrowers with a lower income potentially because of the savings coming from lower utility bills, which have a major impact on the borrower with less disposable income. The results hold for a battery of robustness checks.

Keywords: Mortgages, Energy Efficiency, Credit Risk

JEL Classification: G21