A better class of homeowner?

There is some evidence to suggest that the type of borrower who is interested in exploring a green home-loan option may be a better credit risk than a generic mortgage holder.

DAVISON Is there any difference between the creditworthiness or performance of green- mortgage borrowers versus an equivalent vanilla mortgage?

TAM From what we have seen in personal-lending portfolios linked to green borrowers, it is obvious that they have a higher credit score. If we extend this theory to green home loans, it is a home owner investing in their own home – which suggests they are very conscientious. It attracts a niche borrower group that should be better at repaying.

JENKINS The EU’s EEMI [energy-efficient mortgages initiative] has put an energy-efficiency data protocol in place where it is collecting data among banks and sharing reporting on it, to look at how energy-efficient home mortgages are performing.

It published a report in 2020 on a study in Italy that sampled 72,000 residential mortgages originated between 2012 and 2019. The results were that the higher-rated homes displayed a 30 per cent lower default rate.

The Bank of England also released a study in January 2020, of 1.8 million residential mortgages in the UK, which discovered something similar. This did not talk about the percentages, but the conclusion was that mortgages against energy-efficient properties are less frequently in payment arrears.

The studies are growing in number and we hope the work of the EEMI can be replicated in Australia so we can start to gather and share this data.

GOODHAND With National Australia Bank’s residential mortgage-backed securities deal, has anyone tracked how the green loans have compared with the vanilla?

JENKINS It has not yet been carved out as a separate exercise. Much of the bank’s focus has been on natural capital aspects and linking this to better performance of loans.

DAVISON Does Bank Australia have any observations on the profile of its green-loan borrowers?

KERN It is too early to say definitively. However, we are tracking this information and the green loans we have are performing very well at the moment. We will certainly keep an eye on it and hope it matches what is being seen internationally.

DAVISON In the long term, would investors look for evidence of better performance in products like green loans?

GOODHAND I think it would definitely be a positive. When we are looking at underlying pools, if the bank can demonstrate it is a better risk it should in theory lead to a better price. How much that would be is anyone’s guess at the moment.