Upgrading Housing: the Potential and Limits of Borrower-Based Measures
Pierre Monnin, Ádám Banai, Kristīna Bojāre, Ján Klacso, Reiner Martin and János Szakács | 3 March 2026
Monetary, Discussion Notes | Tags: Credit Risk, Energy, Financial Stability, Housing, Macroprudential Policy
This paper was published by the National Bank of Slovakia. A condensed Policy Brief was published by SUERF – the European Money and Finance Forum.
Improving the energy efficiency of housing is central to meeting the European Union’s climate objectives. Buildings account for a large share of energy consumption and greenhouse gas emissions, and most of today’s housing stock will still be in use in 2050. This means that upgrading existing homes—through insulation, heating improvements, and other renovation measures—will be essential. However, the pace of renovation remains slow across Europe, and current levels of public funding are insufficient to cover the investment needed. As a result, private financing, especially bank lending, must play a larger role in supporting energy-efficient housing upgrades.
Access to credit is particularly important for households that do not have enough savings to fund renovations upfront. Yet expanding household borrowing can also create risks: excessive debt may leave borrowers vulnerable to future shocks and increase banks’ credit risk. For this reason, macroprudential authorities often apply borrower-based measures, such as limits on loan-to-value, debt-to-income, and debt service-to-income ratios, to ensure that lending remains sustainable and financial stability is preserved.
This paper examines whether such measures can be adjusted to support housing upgrades without undermining financial stability objectives. The key idea is that energy-efficiency improvements can strengthen household finances and, in some cases, reduce credit risk. Renovations can lower monthly energy bills, effectively freeing up disposable income that can help service a loan. Upgrades may also increase a property’s market value, improving collateral quality for banks and reducing losses in the event of default. In addition, public subsidies can lower the net cost of renovation and further reduce credit risk. Taken together, these effects mean that a carefully designed easing of borrowing limits for renovation-related loans can be “riskneutral” – i.e., it can expand financing opportunities without materially increasing loan risk.
To explore how this works in practice, the paper reviews recent policy measures in Slovakia, Latvia, and Hungary, where central banks introduced targeted relaxations of BBMs to support energy-efficient housing. In each case, policymakers sought to calibrate the changes cautiously, aiming to reflect expected energy-cost savings and/or improvements in collateral value.
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