Climate Change Risk and the Cost of Mortgage Credit*

Does climate change affect real estate prices? Only if you believe in it

Duc Duy Nguyen, Steven Ongena, Shusen Qi and Vathunyoo Sila

Review of Finance, 2022, vol. 26, issue 6, 1509-1549

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.

Keywords: Bank loans; Residential mortgages; Climate change risk; Sea level rise; Securitization (search for similar items in EconPapers)
JEL-codes: G21 G22 Q54 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Working Paper: Climate Change Risk and the Costs of Mortgage Credit (2020)
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