Green Mortgages

Cocco, João F., Bernardo Mendes and Lakshmi Naaraayanan

No 21346, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study contractual features and lenders' motivations for offering Green mortgages, used to finance energy-efficient properties, in the United Kingdom. There is significant heterogeneity in benefits: preferential-rate mortgages offer 9bp discounts, while the benefits are substantially lower for products with upfront cashback. Our evidence shows that the green label functions as a tool for product differentiation and customer acquisition, with lenders tailoring product features around borrower heterogeneity. In particular, we show that they use upfront cashback as a salient pricing feature of credit contracts to target liquidity-constrained homebuyers. We find no evidence that the financial benefits reflect lower credit risk.

Keywords: Real estate; Household finance; Banks; Energy efficiency; Climate finance (search for similar items in EconPapers)
JEL-codes: G5 Q4 Q5 R1 (search for similar items in EconPapers)
Date: 2026-03
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