BoE: Mortgages against energy-efficient homes less likely to fall into arrears
An analysis by the Bank of England has suggested that mortgages against energy-efficient properties are less frequently in payment arrears.
In a Staff Working Paper written by Benjamin Guin and Perttu Korhonen, a conclusion is made that energy efficiency is a “relevant predictor” of mortgage defaults.
The research used a data set based on the performance of 1.8 million mortgages in the UK at the end of 2017.
It estimated that around 0.93% of residential mortgages against energy-efficient properties are in payment arrears, which is 0.21 percentage points lower than their energy-inefficient counterparts.
This figure compared to 1% of medium energy efficient properties and 1.14% of low energy efficient properties.
In terms of the total share of mortgages in arrears, there were 7% fewer high energy efficient property borrowers falling behind in payments compared to those in medium energy efficient homes.
The report states: “Two mechanisms could be driving this difference.
“On the one hand, energy bills are lower for energy-efficient properties.
“Savings on energy bills could lead to lower arrears rates (“energy savings effect”).
“Alternatively, high-income borrowers could be more likely to take out mortgages against energy-efficient properties.”
The research highlights that around 23% of all properties are of high energy efficiency, which is the equivalent of an EPC rating of A, B or C.
Meanwhile almost half (49%) are of medium energy efficiency which is an EPC rating of D, whilst 29% are of low energy efficiency with ratings of D, E and F.
The average age of a borrower at the time of a mortgage application was 37, the average income was £55,000 and the average LTV was 81% according to the report.