Benjamin Guin
UK residential buildings account for about 15% of greenhouse gasoline emissions. To facilitate the transition to a low-carbon economic system, the UK authorities goals to see many houses upgraded to an energy (EPC) rating of C or higher by 2035. Mortgage lenders are key in transitioning to extra energy-efficient housing by financing purchases. This transition may 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 Green Asset Ratio.
This put up 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 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 information exhibits an identical distribution. That is considerably stunning: there’s rising evidence that mortgages against energy-efficient buildings are less credit-risky. Thus, disclosing a metric just like the EEMR might assist markets gauge the riskiness of lenders’ portfolios, as an example by illustrating how lenders is perhaps affected by mortgage underperformance on account of rising energy costs. This may increasingly assist lenders access cheaper funding and it might improve their valuations if traders reacted to it.
Chart 1: Power-efficient mortgage ratio (EEMR) throughout UK mortgage lenders
Notes: Pattern consists of lenders with no less than 1,000 excellent residential mortgages. Giant lender with no less than 5,000 excellent residential mortgages.
Benjamin Guin works within the Financial institution’s Technique and Coverage Strategy Division.
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