Climate risks, energy efficiency and mortgage lending

The aim of the project is to advance our understanding of the financial risk posed by the physical changes from Climate Change, i.e. changing weather and temperatures, and of green policies accompanying the transition to net zero. The project focuses on risks in the housing and mortgage markets in the UK. The project aims to deliver high-quality research output that quantifies these climate-related risks in mortgage lending. Using unique microdata, we will investigate how i) changing heating and cooling demands, ii) energy costs, and iii) efficiency standard setting affect house prices and mortgage default rates. The empirical results will be used to simulate the impact of currently proposed green policies and climate-related weather events on aggregated risk in the mortgage market and to the BoE's balance sheet. The ensuing financial risks in the mortgage market, and how to manage and mitigate them, have received little attention so far.