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Transition Risks and Opportunities in Residential Mortgages

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  • Franziska Schütze

Abstract

A range of studies has analysed how climate-related risks can impact financial markets, focusing on equity and corporate bond holdings. This article takes a closer look at transition risks and opportunities in residential mortgages. Mortgage loans are important from a financial perspective due to their large share in banks’ assets and their long credit lifetime, and from a climate perspective due to their large share in fossil fuel consumption. The analysis combines data on the energy-performance of buildings with financial data on mortgages for Germany and identifies two risk drivers – a carbon price and a performance standard. The scenario analysis shows that expected credit loss can be substantially higher for a “brown” portfolio compared to a “green” portfolio. Taking climate policy into account in risk management and strategy can reduce the transition risk and open up new lending opportunities. Financial regulation can promote such behaviour.

Suggested Citation

  • Franziska Schütze, 2020. "Transition Risks and Opportunities in Residential Mortgages," Discussion Papers of DIW Berlin 1910, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1910
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.802032.de/dp1910.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Mortgages; residential buildings; carbon risks; transition risks; valuation; climate policy scenarios; policy and regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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