Why are green mortgages cheaper?

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Wiresandmore

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Why are lenders linking low rates to energy efficiency? That’s nothing to do with the security of the loan?
 
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That is an interesting question.

Interest rates should be lower if the borrower has higher repayment capacity and a lower Loan to Value.

It could be argued that an energy efficient home will be cheaper to run so the repayment capacity of the borrower is higher.

It could also be argued that in the event of default, and energy efficient home will be easier to sell.

Brendan
 
I may be extremely naïve, but maybe BoI are doing their bit for the environment by encouraging people to have more efficiently run homes. Doing nothing is going to cost us all in the long run. They may have run the numbers in HQ and seen that global warming is going to impact their bottom line in the future and this is a way of protecting that in the long term.
 
Bank of Ireland do not wish to exclude themselves from the growing ESG investment space.
 
The EU has proposed that bank capital requirements should be relaxed to incentivise sustainable lending, effectively a subsidy for green mortgages. Not sure if this has come into force?
 
AIB and BOI have both issued substantial 'Green bonds'. There's a growing market for these with investors.
Then there are marketing aspects, like higher BER rated houses will typically be higher value, and therefore bigger mortgage values.
 
Hi Red
Thanks for that useful information.
Are the coupons on these Green Bonds lower than comparable bonds?

Then it raises the question - why are people investing in Green Bonds? Is that a form of virtue signalling by pension funds and other investors or is there some commercial benefit?

Brendan
 
Brendan Burgess said:
Then it raises the question - why are people investing in Green Bonds? Is that a form of virtue signalling by pension funds and other investors or is there some commercial benefit?
Click to expand...
"Sustainable investment" is a huge market. I haven't compared bond yields, but it taps into a huge pool of new investment - ESG bond issuances will top 1 trillion this year. It also makes AIB & BOI themselves more attractive to ESG investors / funds.
Not sure if its beyond virtue signalling yet, but listed companies in the EU have to report on ESG impacts. AIB & BOI both signed the UN Principles for Responsible Banking, so these are all steps to meet that.
 
Can't see this being any more than a marketing ploy. If we had a property crash are new homes really going to fare significantly better then the existing stock, doubtful.

More likely they can claim lower rates but only offer them small segment of the market. Banks get pilloried for offering different rates to new and existing customers but "green" makes it less contentious.
 
I see it as mostly marketing, however, if you have two identical houses, one is B3 say, and the other is D3, (as they never upgraded). The B3 will sell faster and will fetch a higher price.

Banks see the better BER rating as a lower risk, and it is, its cheaper to run for energy, and more comfortable.

Having said all of that, a friend is finalising his mortgage quotes, and he was able to get a better interest rate, than the AIB green mortgage rate offered, so if you have a strong LTV, you may do better elsewhere.
 
If green mortgages are cheaper, that suggests that green mortgage rates are the ‘real price’. The better question perhaps is ‘why are non green mortgages dearer?’

There maybe something around price differentiation going on. Why do student discounts exist in shops? But I can’t work out the economics of this in the case of green mortgages - why segment the market in this way?
 
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