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Risk differentials between green and brown assets?

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  • Guin, Benjamin
  • Korhonen, Perttu
  • Moktan, Sidharth

Abstract

We examine the relative riskiness of residential mortgages depending on the energy efficiency of the underlying property. Using a unique micro-level dataset in the UK, our analyses suggest that mortgages against energy-efficient properties are less frequently in payment arrears than mortgages against energy-inefficient properties. This result is robust to controlling for other relevant determinants of mortgage default including borrower income and loan-to-value (LTV). We conclude that the energy efficiency of a property is a relevant predictor of mortgage payment arrears. This result adds to the evidence base on risk differentials between green and brown assets.

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  • Guin, Benjamin & Korhonen, Perttu & Moktan, Sidharth, 2022. "Risk differentials between green and brown assets?," Economics Letters, Elsevier, vol. 213(C).
    • Handle: RePEc:eee:ecolet:v:213:y:2022:i:c:s016517652200026x
    DOI: 10.1016/j.econlet.2022.110320
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    Cited by:

    1. Fetzer, Thiemo & Gazze, Ludovica & Bishop, Meena, 2022. "How large is the energy savings potential in the UK?," The Warwick Economics Research Paper Series (TWERPS) 1437, University of Warwick, Department of Economics.
    2. Reghezza, Alessio & Altunbas, Yener & Marques-Ibanez, David & Rodriguez d’Acri, Costanza & Spaggiari, Martina, 2022. "Do banks fuel climate change?," Journal of Financial Stability, Elsevier, vol. 62(C).
    3. Basse, Tobias & Karmani, Majdi & Rjiba, Hatem & Wegener, Christoph, 2023. "Does adhering to the principles of green finance matter for stock valuation? Evidence from testing for (co-)explosiveness," Energy Economics, Elsevier, vol. 123(C).
    4. Justin Contat & Caroline Hopkins & Luis Mejia & Matthew Suandi, 2023. "When Climate Meets Real Estate: A Survey of the Literature," FHFA Staff Working Papers 23-05, Federal Housing Finance Agency.
    5. Fetzer, Thiemo, 2023. "Regulatory barriers to climate action : Evidence from Conservation Areas in England," The Warwick Economics Research Paper Series (TWERPS) 1451, University of Warwick, Department of Economics.
    6. Fetzer, Thiemo & Gazze, Ludovica & Bishop, Menna, 2022. "Distributional and climate implications of policy responses to the energy crisis: Lessons from the UK," CAGE Online Working Paper Series 644, Competitive Advantage in the Global Economy (CAGE).
    7. Bell, Jennifer & Battisti, Giuliana & Guin, Benjamin, 2023. "The greening of lending: Evidence from banks’ pricing of energy efficiency before climate-related regulation," Economics Letters, Elsevier, vol. 230(C).
    8. Billio, Monica & Casarin, Roberto & Costola, Michele & Veggente, Veronica, 2023. "Learning from experts: Energy efficiency in residential buildings," SAFE Working Paper Series 403, Leibniz Institute for Financial Research SAFE.
    9. 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.

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    More about this item

    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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