29.11.2023 – 12:31h Updated 11/29/2023 – 12:38h
Do you know the climate risk of the city you live in or would like to live in? This is going to become one more factor that banks will take into account when granting a mortgage to their clients. A new condition that will have a great weight in the loan contracting process and that may not only make financing more expensive, but even jeopardize its granting.
Specific, If the home is located in a natural disaster area, in the not too distant future, the mortgage could be more expensive. This is one of the main conclusions drawn from a report presented by the financing specialist, Unión de Créditos Inmobiliarios (UCI). A guide detailing the main environmental factors and climate risks faced by the Spanish housing stock. And the implications that this aspect could have on the viability of mortgages.
Information content:
Why climate change matters when granting a mortgage
Extreme weather events, such as prolonged droughts, flash floods, forest fires and severe storms, which are becoming more frequent, represent a significant threat to the overall economy. A situation in which the European Central Bank has spoken out to urge financial entities to adopt measures to promote climate change. And so that they include climate risk within their governance and strategy before December 2024.
Despite these recommendations, 6 out of 10 banking entities still do not have solid stress testing frameworks on climate risk, as detailed by the Bank of Spain. Although despite this, according to Cátia Álves, director of Sustainability and Rehabilitation at UCI, some entities have already begun to analyze the climate risk of the properties they finance, given that it is the mortgage guarantee that the organizations have.
Among the specific actions, they work with tools and metrics that assess the vulnerability of properties to climate risks. An analysis that also aims to estimate the economic impact they could have on the long-term market value. An evaluation that will allow informed decisions to be made and climate resilience to be considered as a key factor in investment strategies.
This, in the case of individuals, It can be synonymous with whether or not they are granted the mortgage or the possibility of an increase in its price if the property is located in an area with high exposure to the risk of climate change..
What factors will banks take into account regarding climate risk?
Alves explains that the Mortgage management will reflect a change in banking operations. In such a way that environmental risks are going to be incorporated into the financial equation. From floods to fires. Specifically, the European Central Bank urges entities to consider these factors so that they directly impact the appraisal of properties and, therefore, the associated expenses of mortgages.
The main risks and impact that this climate risk can have on homes is precisely the depreciation of properties or even the loss of investments.
Flood risk
Homes in flood-prone areas with extreme rain events or rising sea levels. Heavy flooding can seriously damage structures, as well as the infrastructure of buildings. Additionally, coastal properties also face the risk of sea level rise and erosion, which can lead to the destruction of homes and land loss.
Drought risk
Areas affected by drought. The homes located in these spaces affect the availability of water and, therefore, the yield of crops. Additionally, the risk of ground subsidence could affect the stability of buildings.
Risk of extreme heat waves
Homes located in areas with extreme heat waves. These types of properties could suffer structural damage due to thermal stress and cause a greater demand for cooling systems, with the consequent increase in CO₂ emissions.
Risk of fire
Homes in areas with fire risk. In this case, the danger of rapid fire spread to urban areas could affect structures, as well as cause damage to air quality and health risks.
Risk of volcanic areas
Homes in volcanic areas. Those properties located in areas with risk of volcanic eruption could affect the buildings, as well as requires construction measures resistant to this activity.
Earthquake risk
Homes affected by earthquakes. The possibility of collapse of structures that are not designed to resist earthquakes represents a total threat to the structural stability of buildings and the need to build seismically resistant homes.
The highest risk areas in Spain
The UCI analysis reveals that areas located in coastal areas, such as the Costa del Sol and the Costa Brava, are among the most exposed in the country to extreme phenomena, which could directly impact the financial viability of operations and the concession. of the mortgage.
Other impacts of climate change on the real estate market
In addition to all these factors, climate change also has an indirect impact on the real estate sector due to climate variability. The Changes in rainfall and temperature patterns can affect the demand for homes, as well as their prices..
Specifically, from UCI they explain that “for example, areas that used to be attractive to live in may become less desirable due to water scarcity or increased temperatures. This can result in a decrease in property values in those areas and in loss of investments for homeowners,” they conclude.
Another consequence and risk of this climate change in the real estate sector occurs in structures, given that cities are increasingly exposed to the risk of floods and storms, which can affect infrastructure. If they deteriorate, these areas can become less attractive to live in. Which It has a negative impact on the real estate market.
For all these aspects, it is essential that future buyers evaluate not only the location and amenities of a property, but also its resistance to climate risks.
If you want to read more news like Banks are beginning to take climate change into account when granting a mortgagewe recommend that you enter the category of Mortgages.
2023-11-29 14:49:37
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