Climate Change Risk and the Cost of Mortgage Credit. (4th March 2022)

• Record Type: Journal Article
• Authors: Nguyen, Duc Duy; Ongena, Steven; Qi, Shusen; Sila, Vathunyoo
• Is Part Of: Review of finance. Volume 26:Number 6(2022)
• Page Start: 1509
• Page End: 1549
• Publication Date: 2022-03-04
• Subjects: Bank loans -- Residential mortgages -- Climate change risk -- Sea level rise -- Securitization; G21 -- G22 -- Q54; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfac013
• Languages: English
• ISSNs: 1572-3097

Abstract

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 areas with more climate change deniers. Overall, our results suggest that mortgage lenders view the risk of SLR as a long-term risk and that attention and beliefs are potential barriers through which SLR risk is priced in residential mortgage markets.