Duncan Farmer looks at the possibility of better mortgage deals for energy-efficient properties.
Companies and other organisations of all shapes and sizes are being urged to go greener, and UK Finance, the body that represents banks and building societies, wonders whether mortgage lenders could do their bit.
It is hard to see how, but in a blog post Carla Sateriale, has tried to examine what lenders are doing and what more they could do to save the planet. She says that some smaller firms have had green mortgages for a while but that they have been a mainstream product for only the past 12 months.
“The idea behind them is that consumers taking out financing for an energy-efficient property can benefit from a cheaper rate on their mortgage,” she says. “When you consider that mortgages are a commonly held financial product, this could be a simple way to get consumers on board with green investment.”
It seems quite a small step but analysis from the Bank of England suggests that the energy efficiency of a property could be a good indicator of whether or not a borrower would go in to arrears, although there may be other reasons. “Correlation is not the same as causation, and not all are convinced by the Bank’s argument,” says Ms Sateriale. “It is thought that there are two potential avenues which could explain why a mortgage on an energy-efficient home might be less risky. Firstly, by making a property more energy efficient, the value of the property may increase, and this would feed through into an improved balance sheet position for the lender.”
However, she is not convinced and says that energy performance is one of a range of factors that affect the value of a property. Indeed, on a buyer’s wish list energy efficiency comes a long way behind location, location, location. “Secondly,” she says, “a household with an energy efficient property will have, in theory, lower energy expenditures (bills) and therefore additional disposable income. This could provide a financial buffer for the household, reducing the likelihood of mortgage arrears.”
The trouble with theory, she says, is that there is no suggestion that environmental credentials are any greater a factor than any other aspect of the borrower’s lifestyle or spending habits. “It is possible that consumers who purchase eco-friendly properties may be more conscientious than the average consumer, which may motivate both their preferences for green products and their financial behaviours,” she says.
She concludes that it is too early tell whether the green credentials of a borrower or their home have any bearing at all on what matters to most the organisation lending them the money to buy it – their chances of getting it back.