Climate Change Risk and the Cost of Mortgage Credit

Nguyen, D.D.; Ongena, S.; Qi, S.; Sila, V.

doi:10.1093/rof/rfac013

Climate Change Risk and the Cost of Mortgage Credit

Nguyen, D.D.; Ongena, S.; Qi, S.; Sila, V.

Authors

Professor Louis Nguyen duc.d.nguyen@durham.ac.uk
Professor

S. Ongena

S. Qi

V. Sila

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.

Citation

Nguyen, D., Ongena, S., Qi, S., & Sila, V. (2022). Climate Change Risk and the Cost of Mortgage Credit. Review of Finance, 26(6), 1509-1549. https://doi.org/10.1093/rof/rfac013

Journal Article Type	Article
Acceptance Date	Feb 11, 2022
Online Publication Date	Mar 4, 2022
Publication Date	2022-11
Deposit Date	Feb 15, 2022
Publicly Available Date	Mar 5, 2024
Journal	Review of Finance
Print ISSN	1572-3097
Electronic ISSN	1572-3097
Publisher	Oxford University Press
Peer Reviewed	Peer Reviewed
Volume	26
Issue	6
Pages	1509-1549
DOI	https://doi.org/10.1093/rof/rfac013
Keywords	bank loans, residential mortgages, climate change risk, sea level rise, securitization
Public URL	https://durham-repository.worktribe.com/output/1214135

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Copyright Statement
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 'Climate Change Risk and the Cost of Mortgage Credit' is available online at: https://academic.oup.com/10.1093/rof/rfac013