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Climate Change Risk and the Costs of Mortgage Credit

Author

Listed:
  • Duc Duy Nguyen

    (King's College London)

  • Steven Ongena

    (Bank of ItalyUniversity of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))

  • Shusen Qi

    (Xiamen University - School of Management)

  • Vathunyoo Sila

    (University of Edinburgh)

Abstract

We show that lenders charge higher interest rates for mortgages on properties exposed to a greater risk of Sea Level Rise (SLR). This SLR premium is not evident in short-term loans and is not related to borrowers’ short-term realized default or creditworthiness. Further, the SLR premium is smaller when the consequences of climate change are less salient and in neighborhoods with more climate change deniers. Overall, our results suggest that mortgage lenders view the risk of SLR as a long-term risk, and that lack of attention and beliefs are potential barriers that inhibit the pricing of climate-related risk in residential mortgage markets.

Suggested Citation

  • Duc Duy Nguyen & Steven Ongena & Shusen Qi & Vathunyoo Sila, 2020. "Climate Change Risk and the Costs of Mortgage Credit," Swiss Finance Institute Research Paper Series 20-97, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2097
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    More about this item

    Keywords

    bank loans; residential mortgage; climate change risk; sea level rise;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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