Lenders must prepare for the impact of climate change
David Ross is managing director of Hometrack
Climate change is undoubtedly the biggest challenge facing mankind and tackling it will require a concerted, global effort the likes of which has never been seen before.
While some people like to believe this is tomorrow’s problem this is sadly not the case. Indeed the United Nations has warned that unless we make drastic changes to the way we live we will begin to see the serious consequences by 2043.
We’ve already begun to see changes in the climate right here in the UK with severe weather events, from longer, hotter summers to floods like those seen just last week, becoming increasingly commonplace. Across the world flash fires and hurricanes are on the rise.
The Bank of England, via the PRA, has called on lenders to be prepared for the inevitable impact of climate change. In its 2021 biennial exploratory scenario the Bank noted the “pressing need” for financial institutions to begin managing the risk extreme weather poses to ensure the market remains resilient.
Climate change represents a shock to the financial system and the wider economy, much like a natural disaster, so it is good to see regulators treating it like one.
This is why we’ve recently launched an industry-first partnership with Ambiental and Terrafirma, two leading UK climatology specialists, to deliver a leading climate change risk solution for mortgage lenders. We believe that by combining our expertise in insight and analysis with that of the climatologists at Ambiental and Terrafirma, we are creating an industry leading product that will help lenders with the challenges climate change poses.
Some may argue there are more pressing problems facing society right now. We strongly disagree. Indeed we believe that the only way we can be prepared for the future is if we start amassing data and planning today. Lenders need to understand the risk that climate change poses and in turn what this means for their mortgage portfolio.
The impact of climate change will not affect residential and commercial properties uniformly so only by completing this analysis for lenders can we establish in turn what the risk is for property owners and then how to mitigate these. Our work will help developers and local and national authorities as we learn what changes we need to make to the environment. Planning laws, both where properties can be built and how they should be built, need not reflect the world now but the world in 30 years time.
If we do not learn what the impact on climate change will be on properties, instead choosing to focus our effort on other, perhaps easier to grasp, problems, we run the risk of creating a class of owners stranded with properties and debt. Houses that appear safe now could be impacted by repeated flooding, making them expensive to insure and their owners unable to secure mortgages on what was their most valuable asset.
At an individual level I appreciate it’s hard for us to grasp the impact of climate change. From our island, with its seemingly temperate weather and regular seasons, it appears to be a problem for a different time and a different place.
We know however sadly this isn’t the case. I don’t like to be a doom monger but temperatures will inevitably rise. Icecaps will melt, the sea levels will rise and harvests will fail affecting local and global economies. We have a collective duty to grasp the mantle and understand the impact of this issue as an industry. We owe it to property owners and society at large to help tackle the most difficult issue of our time and do our bit to ensure the system continues. The consequences of us failing to do so are too great to even contemplate.
At 14.00 on Thursday 11 February Hometrack is running an exclusive webinar – ‘Climate change and mortgage lending: the current reality and future implications’. For more details or if you’d like to attend email [email protected]