The greening of lending: mortgage pricing of energy transition risk

Jennifer Bell, Giuliana Battisti and Benjamin Guin
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Jennifer Bell: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 1016, Bank of England working papers from Bank of England

Abstract: Shocks to energy prices can have a direct impact on homeowners’ disposable income, affecting their ability to pay their mortgage. Properties’ energy efficiency can provide some protection against the transition risk of rising energy costs. Anecdotally, lenders appear to be increasingly differentiating mortgage interest rates based on energy efficiency. But did lenders account for it before relevant regulatory interventions came in? We estimate standard mortgage pricing models using a unique data set of 1.8 million mortgages originated in the United Kingdom pre-2018. We find no evidence of lenders charging higher rates on riskier mortgages against energy-inefficient properties. Overall, our findings do not provide conclusive evidence that lenders took energy efficiency into account when setting interest rates prior to regulatory interventions.

Keywords: Mortgage pricing; energy efficiency; climate change; transition risk (search for similar items in EconPapers)
JEL-codes: G21 Q40 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2023-03-03
New Economics Papers: this item is included in nep-ban, nep-ene, nep-env and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1016

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