Fewer and lower loans, higher payments: this is how climate change affects mortgages | National and international economy

Floods, extreme heat or volcanic eruptions, these are just some of the effects of climate change already affecting mortgage loans. In fact, warmer temperatures mean fewer applications are approved and smaller loan amounts are granted, according to research published this month Science Direct. The document shows that this effect is more pronounced in…

Floods, extreme heat or volcanic eruptions, these are just some of the effects of climate change already affecting mortgage loans. In fact, warmer temperatures mean fewer applications are approved and smaller loan amounts are granted, according to research published this month Science Direct. The document shows that this effect is most pronounced in areas vulnerable to sea level rise or during periods of greater public interest in climate change, especially the terms of loans granted by small lenders.

At the national level, Caixa Bank indicates that it is too early to talk about numbers, as it is a scenario that has not yet occurred and its effects will not appear in the short term. However, they realize that geographical area and property type are increasingly taken into consideration when choosing a home for fear of climate catastrophe. “New factors have already been incorporated that allow us to measure what we know as ‘physical climate risk’, which essentially relates to location in areas that have a higher probability of extreme weather events, such as drought or fires, which can mean a decline in the value of assets such as collateral.” Which would lead to a lower amount of credit being granted or an increase in the interest rate due to increased risk.As for payments, it is possible that in the long term we will see increases in insurance premiums or even cancellation of the insurance policy in certain locations, as we have already seen in other sectors.

For now, what banks are working on is meeting the European Central Bank’s demand to reform their policies by incorporating climate risk considerations into their credit risk models. For example, a bank granting a loan to a company whose factories are located close to a river, in a country that is expected to suffer more and more floods, must take into account the risks it is exposed to when granting the loan.

But in the United States, there is specific data. document Science Directt reveals that a one-degree increase above the average temperature reduces the mortgage approval rate by 0.88 percentage points, which represents 10.7% of the standard deviation of the loan approval rate, i.e., “indicating not only a statistically significant effect, but also “Economically important,” according to the study’s conclusions. The scientists are based on loan applications recorded between 1990 and 2016 in the United States. By analyzing the areas of the degassing of the prestamos, we recognize that this is the main one under the “garantía” theme, if we refuerza the idea of ​​what has been created before the entidades of the prestamos’ organs for the possible side effects of the project. Climate change.

The research results show that higher temperatures have a greater impact on the amount given to families, with a 6.7% decrease in affected counties. This represents a decrease of $1.26 million (€1.17 million) on average per year. When climate change is linked to the risk of sea level rise, the losses are greater. The mortgage approval rate fell by 2 percentage points and the amount fell by 21.2%. The effect in these areas is 1.5 times stronger than in areas far from the coast.

Climate change also affects the supply and demand channel due to the deterioration of the economy. Studies show that adverse environmental conditions can prompt businesses to relocate and residents to migrate to less affected areas, resulting in reduced local employment and tax revenues, and undermining the ability of local governments to maintain public infrastructure and services. As a result, the demand for mortgage loans will decrease even if the status of banking entities remains unchanged. However, it does not adjust interest rates significantly, and when it does, it focuses on those with higher incomes.

Beyond mortgages for a new home, climate disasters are already affecting insurers, and some have begun to withdraw from certain areas. The most recent case occurred in June of this year; Two giants of the US insurance industry have stopped selling protection Due to accidents involving people and small businesses in California due to greater exposure to disasters.

Housing risks associated with climate change in Europe are also considered. In the UK, for example, HSBC has warned that lenders are carrying out additional checks to assess whether a property is at risk. If the score is “high,” the effect is that you may be denied insurance. The most prominent cases are due to heavy rains and unstable terrain, which are increasingly occurring in the country. In this regard, the banking entity states that in England alone there are 5.2 million properties – that is, one in six – at risk of flooding.

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