Property Valuation and Climate Risk: Navigating the Future of Mortgage Assessment with vdpResearch #17

In this episode of Mortgages Covered, Richard Kemmish, EMF-ECBC & ISMMA Consultant, is joined by Mike Breckner and Sarah Reuter from vdpResearch, to discuss their work mortgage appraisal, energy efficiency assessment, and risk modelling for mortgage lenders.

This Episode of Mortgages Covered explores:

• vdpResearch’s objective of providing effective solutions for its member banks.
• The practicalities of obtaining energy performance certificate.
• The use of existing data and property valuation expertise for successful estimation.
• The development of supplementary tools and services to support the assessment of climate-related risks.
• A risk-analysis tool designed to identify, calculate, and quantify exposure to natural hazards.

Transcript

SPEAKER_00 0:00

The VDP is a name familiar to anybody in the covered bond market. Less familiar is their research offshoot, VDP Research, who do important work on both appraising mortgages, appraising energy efficiency, modelling risk for mortgage lenders. I spoke to Maker Protner and Sarah Reuter from VDP Research about what they've been doing in this area recently. So if you could yeah, if you could simply explain the product as you just explained it to me, that'd be really helpful.

SPEAKER_02 0:35

Yes, well, thank you for inviting us and for having us here. My name is Maika, I'm from VDP Research. Uh VDP Research is a subsidiary of the Association of German mortgage banks. Um and it's a databased analytics that we are offering, indices, forecasts, uh, and different market and transactional data that we are putting into risk models. And um so this year at the conference of the EBCB, we uh want to present some uh products that are going into the ESG uh section risk. So um as we want to understand ESG as a cross-cutting topic. Um and uh we know with the EU harmonization we wanted to provide solutions for our member banks that are uh good, that they can use, that help the institutes and the member institutes and the member banks to um have uh solutions that they can just use uh that are very effective. And um, so um, for example, we have a tool that's called VDP retrofit, and uh this helps you to see the as uh the state, uh the actual status of your property um and uh the uh energetic efficiency that you are having and um what kind of or how many emissions, uh CO2 emissions you are having, but also provides you then on the basis of this as of today's status, um, different solutions and different paths that uh how you can modernize the um and renovate your uh property and how much impact this would have on the energetic um output and of uh the reduction in CO2 that you can have. So it gives you a different um um possibility to um see different paths and uh to compare them also economic-wise.

SPEAKER_00 2:33

And how do you do that in practice? I I don't know what my energy performance is. How yeah, I give you an address. How do you work out the energy performance certificates?

SPEAKER_02 2:42

So uh this is uh a problem that uh a lot of the banks they do have because uh they only have the address and they uh do not know a lot of other things of the property. Um so we we can um uh calculate this with uh very few input data, so it's the address that you need. Um if you have the heating system and the year of the construction of uh the property, then having a lot of transactional data that we are having with uh our 700 member banks that we're having and seeing what kind of properties might be in this area and uh be constructed at the same time and with public data that we are using, um we can we can measure or we can assume more or less what kind of um um house or how the house was constructed, with which um different uh properties. And so based on this, we can calculate um how much emissions this will have, and uh if you if you know it um more exactly, you can also uh you see transparently what input data we would use for a calculation. But um really with uh five uh data points uh you can also uh get a a broad um overview of uh the costs that are that you're having and that you're running into till 20 uh 50, and then uh uh offers you different passes. So you can say, for example, sorry.

SPEAKER_00 4:07

But it's but it's about extrapolating from known data to try to get an estimate of what can be done. Yes. Yeah, rather than sending someone to actually do a physical analysis.

SPEAKER_02 4:15

So but also um having an uh uh uh evaluator that knows exactly the property, and you say, like, oh no, we are not touching the roof because the roof has been done lately, or we just installed a different uh heating system, we are not touching this, even if there is a better solution. Uh you can include or exclude it, or you can also if you have clients and you're talking um about uh buying a property and they want to say but but how much would redu uh would it be in a reduction if we put into this heating system or another seating system? So you can run different scenario analysis, which makes it really easy to then calculate.

SPEAKER_00 4:51

And that's I guess complementary to the other work that you do and your your analysis of the risk, the climate risks of properties. Tell tell me a bit more about how that works.

SPEAKER_02 5:03

So just to have a turning it to 180 degrees. Turning to other products that we are having. So we are uh cooperating with the uh VDP research with uh Karl, which is Köln Assico Rans, for climate risk analysis, and we have this as an add-on uh tool and add-on service that we um are using and uh complying with these services for the EU taxonomy um alignment to see whether uh we are fulfilling the environmental risks that we are having. So um I'm very happy that uh today or on the conference we are here with um our cooperators with uh in our cooperation with Carl, and so Sarah can tell more about the products that she's having.

SPEAKER_00 5:47

So, for example, if I were to give you my my address, you could tell me what data about the risk, the climate risk of it.

SPEAKER_01 5:54

Yeah, exactly. Karl is a tool which is able to um uh to identify, calculate, and quantify risks through um natural hazards and uh climate hazards. So um, and that works globally. So for every address in the world, size-specific, we are able to uh not only identify um what's happening with the hazard, but also to um uh describe the sensitivity of the object, for example the building, for example, um to quantify the response.

SPEAKER_00 6:24

And that is, for example, the valuation because of risk of I don't know, fires, because the risk of flooding because of that kind of environmental problem?

SPEAKER_01 6:33

It's like uh each of every kind of uh natural hazard like a like a flood, like a storm surge, a heavy rain, a storm, um what else? A wildfire, uh could be any kind of hazard. So there's some regulation um in the EU taxonomy, for example. Um they um have a list with 28 hazards, and we can um uh calculate the risk for each of these hazards.

SPEAKER_00 6:57

And and your client for that are the banks looking at the valuations of the property and how sensitive those valuations are.

SPEAKER_01 7:03

The main sector of our customers is are the banks and the VDPs are a um partner for this uh sector, and uh we also have some customers uh from the German industry, for example, or the real estate uh industry.

SPEAKER_00 7:14

Yeah. Okay. Well, thank you very much. That's they sound like great tools. Um thank you very much for supporting the pavilion here today and for speaking to us.

SPEAKER_01 7:23

Thank you very much.