Climate change risk and the cost of mortgage credit

Duc Duy Nguyen; Steven Ongena; Shusen Qi; Vathunyoo Sila

doi:10.1093/rof/rfac013

Climate change risk and the cost of mortgage credit

Duc Duy Nguyen, Steven Ongena^*, Shusen Qi, Vathunyoo Sila

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

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.

Original language	English
Article number	rfac013
Pages (from-to)	1509 - 1549
Journal	Review of Finance
Volume	26
Issue number	6
Early online date	4 Mar 2022
DOIs	https://doi.org/10.1093/rof/rfac013
Publication status	Published - Nov 2022

Keywords / Materials (for Non-textual outputs)

bank loans
residential mortgages
climate change risk
sea level rise
securitization

Access to Document

10.1093/rof/rfac013

NguyenEtal2022RFClimateChangeRisk
This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Finance following peer review. The version of record Duc Duy Nguyen, Steven Ongena, Shusen Qi, Vathunyoo Sila, Climate Change Risk and the Cost of Mortgage Credit, Review of Finance, 2022;, rfac013, https://doi.org/10.1093/rof/rfac013 is available online at: https://doi.org/10.1093/rof/rfac013.
Accepted author manuscript, 2.09 MB

1 Working paper

Climate change risk and the costs of mortgage credit
Nguyen, D. D., Ongena, S., Qi, S. & Sila, B., 14 Dec 2021, 43 p.
Research output: Working paper

Climate change risk and the costs of mortgage credit
Ben Sila
15/02/21
1 Media contribution
Press/Media: Research

Cite this

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title = "Climate change risk and the cost of mortgage credit",

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{\textquoteright} 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.",

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author = "Nguyen, {Duc Duy} and Steven Ongena and Shusen Qi and Vathunyoo Sila",

year = "2022",

month = nov,

doi = "10.1093/rof/rfac013",

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Y1 - 2022/11

N2 - 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.

AB - 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.

KW - bank loans

KW - residential mortgages

KW - climate change risk

KW - sea level rise

KW - securitization

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M1 - rfac013

ER -

Climate change risk and the cost of mortgage credit

Abstract

Keywords / Materials (for Non-textual outputs)

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Research output

Climate change risk and the costs of mortgage credit

Press/Media

Climate change risk and the costs of mortgage credit

Cite this