Energy efficiency linked to commercial mortgage default rates

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Recent research in the United States found a link between energy use in buildings and commercial mortgage default rates, a November 2017 says.

The study looked at six large cities in the United States and compared energy use to commercial mortgage debts. The researchers found that there was a statistically significant link between the high energy costs of a building and the likelihood of the mortgage holder being behind on mortgage payments.

The reason for this is that the mortgage holders had not considered the energy costs of running a building before purchasing. Buildings that are less energy efficient use more energy and therefore run up higher bills. The research found that commercial mortgage lenders in the United States did not look at the total energy bills as part of total property operating costs when assessing if borrowers could afford to operate the building, as well as keeping up with mortgage payments.

Dr. Paul Matthew, a scientist on the research team, said:

“Commercial mortgages currently do not fully account for energy factors in underwriting, valuation and asset management, particularly as it relates to the impact of energy costs on net operating income.”

In the UK, regulations govern the energy efficiency rating of commercial buildings for new or refurbished buildings and when issuing new tenancy leases. Energy company Eon has said that companies that own older buildings not covered by the energy regulations should look at ways to improve the energy efficiency of their properties. Improvements may not necessarily be expensive, with upgrading lighting and installing insulation being relatively minor steps that could be taken.

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