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Green Mortgages

Author

Listed:
  • Cocco, João F.
  • Mendes, Bernardo
  • Naaraayanan, Lakshmi

Abstract

We study contractual features and lenders' motivations for offering Green mortgages, used to finance energy-efficient properties, in the United Kingdom. There is significant heterogeneity in benefits: preferential-rate mortgages offer 9bp discounts, while the benefits are substantially lower for products with upfront cashback. Our evidence shows that the green label functions as a tool for product differentiation and customer acquisition, with lenders tailoring product features around borrower heterogeneity. In particular, we show that they use upfront cashback as a salient pricing feature of credit contracts to target liquidity-constrained homebuyers. We find no evidence that the financial benefits reflect lower credit risk.

Suggested Citation

  • Cocco, João F. & Mendes, Bernardo & Naaraayanan, Lakshmi, 2026. "Green Mortgages," CEPR Discussion Papers 21346, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21346
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    File URL: https://cepr.org/publications/DP21346
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    Keywords

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    JEL classification:

    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • G5 - Financial Economics - - Household Finance
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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