The volume of green home and car loans available for securitisation in Europe could exceed €300bn a year by 2030, according to a report from the Association for Financial Markets in Europe with analysis by S&P.
The figure includes estimates for financing to fund purchases of electric vehicles and renovate residential properties in addition to mortgages deemed to be green under the EU Taxonomy for environmentally sustainable activities. The report’s authors looked only at countries with active securitisation markets.
Loans to finance new EV purchases in France, Germany, Spain, Italy and the UK could reach €80bn a year by the end of the decade, assuming that sales increase at a compound annual growth rate of 20%–30%, according to the report. Another €30m a year could be borrowed to fund purchases of used EVs.
EVs already make up more than 10% of the collateral pool in some auto ABS transactions.
In the mortgage market, the AFME report predicts that lending for properties that qualify as green in Belgium, France, Ireland, Italy, the Netherlands, Portugal, Spain and the UK will remain roughly flat at €125bn a year between now and 2030.
But the report says that the amount of this collateral that could be securitised through green RMBS will increase as data on energy performance becomes more widely available and harmonised across Europe, making it easier for lenders to sort the green collateral from the rest.
Funding for green home renovation in the same eight countries could hit €75bn, some of which may be financed through additional mortgage advances that can be securitised, according to the report.
Lending additional sums to mortgage borrowers can be a challenge for securitisation structures, however. Home energy efficiency projects are instead often financed with separate bridging loans that are not typically securitised.
Specialist real estate lender LendInvest, for instance, offers buy-to-let mortgages and bridge financing to landlords in the UK as separate products. It securitises the buy-to-let mortgages through its Mortimer RMBS shelf while funding the bridge loans through a separate programme of retail-eligible corporate bonds.
LendInvest recently launched a green bond framework to allow investors to channel capital into improving the energy efficiency of the UK’s housing stock, but it applies only to the bridge loan funding programme and not to the RMBS platform.
The scarcity of green collateral is often cited as a major factor holding back green securitisation, but not the only one. In its report on Monday, AFME said its development in Europe was also being held back by the regulatory framework. Securitisation made up just 1.4% of green bond issuance in Europe from 2019 to the middle of 2022, compared to 8.1% in China and 32.3% in the US, according to the report.
“The European green securitisation market will flourish only when regulatory impediments in the European securitisation product have been addressed,” said AFME.