Benjamin Guin
UK residential buildings account for about 15% of greenhouse gasoline emissions. To facilitate the transition to a low-carbon financial system, the UK authorities goals to see many houses upgraded to an vitality (EPC) score of C or increased by 2035. Mortgage lenders are key in transitioning to extra energy-efficient housing by financing purchases. This transition could be knowledgeable by a easy metric – just like the portfolio share of mortgages for energy-efficient properties (with a score of C or increased) relative to all excellent mortgages, a variant of the Inexperienced Asset Ratio.
This publish illustrates this energy-efficient mortgage ratio (EEMR). I calculate it for all UK mortgage lenders utilizing the end-2017 inventory of excellent residential mortgages from the FCA’s Product Gross sales Database. The ratio varies between 20% and 40% throughout lenders. Nearly all of lenders maintain mortgage portfolio shares for energy-efficient properties of round 30%. This metric exhibits no obvious variations between smaller versus bigger lenders, suggesting that almost all of lenders had not began specializing in mortgages towards energy-efficient buildings.
Recalculating the EEMR utilizing newer, end-2019 knowledge exhibits an analogous distribution. That is considerably stunning: there may be rising proof that mortgages towards energy-efficient buildings are much less credit-risky. Thus, disclosing a metric just like the EEMR may assist markets gauge the riskiness of lenders’ portfolios, as an example by illustrating how lenders is likely to be affected by mortgage underperformance resulting from rising vitality prices. This may occasionally assist lenders entry cheaper funding and it may enhance their valuations if traders reacted to it.
Chart 1: Vitality-efficient mortgage ratio (EEMR) throughout UK mortgage lenders
Notes: Pattern contains lenders with a minimum of 1,000 excellent residential mortgages. Massive lender with a minimum of 5,000 excellent residential mortgages.
Benjamin Guin works within the Financial institution’s Technique and Coverage Strategy Division.
If you wish to get in contact, please e mail us at bankunderground@bankofengland.co.uk or depart a remark beneath.
Feedback will solely seem as soon as accepted by a moderator, and are solely printed the place a full identify is equipped. Financial institution Underground is a weblog for Financial institution of England workers to share views that problem – or assist – prevailing coverage orthodoxies. The views expressed listed below are these of the authors, and should not essentially these of the Financial institution of England, or its coverage committees.
