Historical valuation data predating the origination of the exposure for eligible immovable property collateral

For the purpose of calculating the average property value   for exposures where the available valuation history does not meet the minimum historical period of six years for residential real estate (RRE) and eight years for commercial real estate (CRE), may the missing historical period be supplemented by using real estate price valuation indices for comparable properties predating the origination date of the exposure?

The Capital Requirements Regulation (CRR3) introduces requirements for the valuation of immovable property used as collateral for credit risk mitigation. Under Article 229(1)(e), institutions must ensure that the property values used in the capital requirements calculation reflect an average over a minimum historical period: six years for residential real estate (RRE) and eight years for commercial real estate (CRE).  In practice, however, institutions often face situations where the available valuation history for a given property does not extend back to the required minimum period. This may occur, for example, when the exposure was originated recently. To comply with the regulation in such cases, institutions need clarity on whether they may supplement missing historical valuation data with external real estate price indices that reflect the evolution of market values for comparable properties prior to the origination date, allowing institutions to resource to valuation series that meet the regulatory minimum length. Given the operational and methodological implications of this approach, institutions seek supervisory confirmation on whether the use of real estate valuation indices is acceptable for the purpose of calculating the required average property value when actual historical valuations are unavailable.