Italian green mortgage market expands, offers rate discounts
A Banca d'Italia Occasional Paper analyzes the Italian green mortgage market between 2022 and 2024. It finds rapid expansion, increasing bank participation, and economically significant interest rate discounts for green mortgages.
Rapid expansion and pricing benefits
The Italian green mortgage market experienced rapid expansion from 2022 to 2024, driven by increasing supply-side engagement from banks.
The number of banks reporting energy efficiency information for new mortgage originations grew from 36 to 124, covering approximately 40 percent of new Italian mortgage lending.
Green mortgage originations doubled relative to 2022, reaching €5.4 billion in 2024 and accounting for 12 percent of total new mortgage lending.
Among banks offering these products, green mortgages represented about 15 percent of new originations.
The paper also highlights that green mortgages are offered at more favorable conditions compared to conventional mortgages.
Econometric estimates show an average discount of 17 to 19 basis points on the net interest rate and 22 to 26 basis points on the annual percentage rate (APR).
This discount became more pronounced from the second half of 2023, resulting in notable interest savings for borrowers.
Policy drivers and bank motivations
The growth in green mortgages is supported by both policy initiatives and strategic bank motivations.
European policy, such as the EU Energy Performance of Buildings Directive (EPBD), encourages financial institutions to integrate energy efficiency into mortgage lending to support the decarbonisation of the housing stock.
Banks are motivated by long-term decarbonisation objectives, sound risk management practices, and competitive positioning.
Offering green mortgages also helps mitigate potential transition risks, meet supervisory expectations, and signal responsible lending practices to investors.
The study notes that energy efficiency information is increasingly relevant in real estate markets, with energy-efficient homes selling at a premium.
Early growth, long road ahead
This paper provides compelling evidence of the nascent but accelerating growth of Italy's green mortgage market, demonstrating a clear financial incentive for borrowers.
However, the market still represents a small share of overall lending, and challenges like data availability and the complexity of EU Taxonomy criteria persist.
Sustained policy support and continued development of informational infrastructure will be crucial for green mortgages to achieve their full potential in supporting climate objectives.