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 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 will 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 submit 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 reveals 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 more moderen, end-2019 information reveals the same 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 might assist markets gauge the riskiness of lenders’ portfolios, as an illustration by illustrating how lenders is perhaps affected by mortgage underperformance attributable to rising vitality prices. This may increasingly 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 not less than 1,000 excellent residential mortgages. Massive lender with not less than 5,000 excellent residential mortgages.
Benjamin Guin works within the Financial institution’s Technique and Coverage Method Division.
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