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The greening of lending: mortgage pricing of energy transition risk

Author

Listed:
  • Bell, Jennifer

    (Bank of England)

  • Battisti, Giuliana

    (Warwick Business School)

  • Guin, Benjamin

    (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.

Suggested Citation

  • Bell, Jennifer & Battisti, Giuliana & Guin, Benjamin, 2023. "The greening of lending: mortgage pricing of energy transition risk," Bank of England working papers 1016, Bank of England.
    • Handle: RePEc:boe:boeewp:1016
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    More about this item

    Keywords

    Mortgage pricing; energy efficiency; climate change; transition risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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