Why do some lenders give lower rates on homes with better BERs?

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NoRegretsCoyote

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EBS's 3- and 5-year fixed rates are 2.75%, which is quite a bit higher.

Can someone tell me why it gives a 0.65 reduction to a customer with a good BER? This is a huge reduction!

Are high-BER home mortgage holders so much less risky? Is it something to do with the kind of regulatory capital needed?
 
Hi Coyote

The only argument I have heard is that someone with a better energy rating has lower energy bills and so they can more easily afford their mortgage.

I don't buy that explanation because if that were a basis for providing lower rates, then surely someone on a much lower Loan to Income ratio should pay a lower rate. In fact, that should result in much bigger savings than lower energy bills.

Brendan
 
Brendan Burgess said:
The only argument I have heard is that someone with a better energy rating has lower energy bills and so they can more easily afford their mortgage.
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Yeah I don't think that that would be material either really.

A high BER could be a proxy for someone with a high income and unlikely to default, but to the point of lending to them at three quarters of the going rate?

My guess is that it is something to do with cheaper funding for "green" lending. Would be interesting if someone with knowledge could clarify.
 
Yes, the bank that backs Brave (which historically is anything but Brave itself) gives cheaper mortgages to people who have BER efficient homes. I bet these are the people who less likely need the lower interest rate, but bottom line is other mortgage payers are paying higher so that others can get cheaper rates. [This was always the case and it will never change].

While I fully agree with Gordon Gekko and concur that this is at best a bank marketing ploy, it is also a diversion from the difficulty in where many cannot get a mortgage at any rate.

Incidentally, the same bank branded its sales staff as "councillors" quite a number of years ago. Semantics, what we we do without them?
 
Gordon Gekko said:
It’s a marketing ploy.

So the bank can stick a slide in a deck showing all the things they’re doing to bring about a brighter future for us all.
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Agreed, mostly a marketing ploy.

Couple of other aspects that may influence it somewhat:
  • Relatively lower bills now, with an even bigger gap in future
  • Proxy for certain cohorts of customers
  • Less likely there's a need for large spends on improving BER in future etc.
 
Gordon Gekko said:
It’s a marketing ploy.
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If it is, surely it's quite an expensive one? Take 1,000 mortages of €300k at 65bps lower than the rest of the book.

That's €2m a year. I think there are probably cheaper ways of marketing. (Large organisations do dumb stuff all the time of course)
 
17 or 18 years ago, I remarked to a friend at management level in one of the pillar banks - he was almost literally sweating at the prospect of an internal AML inspection going awry and fearing for his position - that the banks were headed for trouble if the integrity of their lending was no longer their number 1 priority.

Looks like history is repeating itself.
 
In 2018, Bank of England staff published results showing that default rates are moderately lower for mortgages on high energy efficiency homes, but that this gap shrinks when you control for loan and property characteristics. Default rates were about 1.1% for low efficiency homes and 1.0% for high efficiency homes, once you account for differences in the types of borrower and loans in the two groups. https://bankunderground.co.uk/2018/...ficiency-of-properties-and-mortgage-defaults/
 
NoRegretsCoyote said:
EBS's 3- and 5-year fixed rates are 2.75%, which is quite a bit higher.

Can someone tell me why it gives a 0.65 reduction to a customer with a good BER? This is a huge reduction!

Are high-BER home mortgage holders so much less risky? Is it something to do with the kind of regulatory capital needed?
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Could it be that the Bank has access to cheaper funding via "geeen bonds"....
 
fidelcastro said:
Could it be that the Bank has access to cheaper funding via "geeen bonds"....
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No need for the bank to access green bonds they already have access to near zero cost funding from the deposits base.

Giving lower rates to better BER properties is a less contentious version of giving discounts to new customers. They can market a lower rate and don't have to worry about giving it to everyone.

Saying a high BER has a lower likelihood of default doesn't make sense to me. I've never heard of a property defaulting it's always the owners.

A/B rated houses are a relatively new thing. They'd have collapsed in value just as much as the rest of the stock if they'd been around in the mid 00's.
 
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Dublinbay12 said:
Is it tied to their environmental and sustainability policies?
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It is tied to ESG policies. COP 26 will have a long term impact on many aspects of business and has spawned a whole new industry of ESG initiatives. ESG lending is one such area. Commercial borrowers can also benefit from Green loans.

Jim Stafford
 
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I was about to post a question on this when I found this post.
I’m currently on 2.75% fixed with EBS.
I want to try and get the green mortgage rate if I can. Anytime there has been a rate change they allow me to change without a breakage fee.
Two of my neighbours houses are rated at c1/c2 so I’m going to get a BER assessment and see how I can get to B3 and qualify.
It’s a huge saving, and bloody ridiculous that you can get a cheaper rate just because your house is more energy efficient.
The two things aren’t even related.
 
@Komori Consider using https://www.bercert.com/ to get quotes for a BER assessment. But also use Google and see if you find any other assessors in your area.

I'm pretty sure that you'll have to get a second BER assessment after you do any upgrades, and of course there is no guarantee that you'll get to B3. When you're looking for quotes, ask the potential assessors if they will give you a discount for a second assessment.
 
Ryan said:
Is it worth going for a green mortgage if your home qualifies?
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Often it is. If you like, you can post your mortgage and BER details in the switcher thread and learn your best options, assuming you already have a mortgage. Or post them there anyway even if you are a first-time buyer or mover.
 
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