Does Climate Change Affect Mortgages?

29 May, 2024 | M Aparicio

Many people may feel puzzled when reading the title of our article, thinking that mortgages have nothing to do with climate change. However, the truth is that there is a significant connection, more than we might initially think.

It’s important to remember that in a mortgage, the property or real estate in question serves as collateral for the bank, protecting them against adverse circumstances that might prevent them from recovering the capital loaned to the buyer.

Climate change can cause extremely harmful weather conditions that pose a serious risk to certain properties. Faced with this potential risk, banks may seek to protect themselves by increasing the costs of corresponding mortgages.

We are all now very aware that climate change is real, as it has begun to show its effects in various aspects and circumstances of our daily lives. One of the sectors affected is the real estate market, and more specifically, mortgages.

How Climate Change Works

Climate change affects various climate patterns, including temperatures and rainfall, and can lead to extreme weather events with devastating effects. These changes not only impact the environment but also cause very harmful economic effects, and the real estate and mortgage sectors are not exempt.

To summarize, homeowners and banks are facing risks from extreme weather events, directly impacting mortgages.

Examples of Climate Risks That Threaten to Increase Mortgage Costs

The well-known climate risk threatens to significantly increase mortgage prices in highly touristic and coastal areas such as Costa del Sol and Costa Brava. In these areas, the main current risk is increasingly frequent torrential rains.

Regions like Galicia and Asturias are also climate risk areas, primarily due to fires. These regions are vulnerable to an increase in mortgage costs. Climate change has caused a considerable decrease in rainfall in these forests, resulting in more dryness and hence more fires, which increases investment risks in these areas.

La Palma island in the Canary Islands is another area more vulnerable to climate risk due to its volcanic activity. Granada is also quite susceptible to climate change, particularly because of earthquakes caused by the collisions between the Iberian and African plates.

The Union of Real Estate Credits (UCI) warns that these areas are the most exposed to extreme weather events. The UCI explains it well in its press release: “Tell me where you live, and I’ll tell you the climate risk that could affect you when applying for a mortgage.”

If our home is in a place exposed to natural disasters, our mortgage could become more expensive in the near future.

Banks Protecting Themselves Against Climate Change

Some banks have already started to analyze the climate risk to which the properties they mortgage are exposed, as these properties serve as their collateral. Financial institutions are very vigilant and wary of prolonged droughts, fires, sudden floods, and all adverse phenomena that climate change can cause.

The European Central Bank (ECB) has already warned banks of the potential risks that climate change can cause and has urged them to adopt measures within their governance competencies and establish or design a strategy.

The ECB is already warning financial institutions

The great guardian of the Eurozone’s economy, which is none other than the European Central Bank (ECB), has already warned banks about the possible risks that climate change can cause and has urged them to adopt measures within their governance competencies and to establish or design a strategy.

Mortgage Issues Due to Climate Change

Individuals or families seeking a mortgage may find that their approval depends on whether the property they want to buy is in a climate risk area or not. Even if the mortgage is granted, the buyer may face a higher cost due to the property being in a high-risk area for climate change.

This could lead to an increase in inequality in housing access due to climate change. Additionally, many people might feel forced to migrate, affecting mortgage markets in the chosen destination areas as they seek protection from climate risks.

We are not only talking about mortgage approval or cost based on climate risk exposure but also about even more problematic circumstances like property depreciation or loss of real estate investments.

As we see, there is a lot at stake due to climate change, involving high-level economics like the real estate and mortgage sectors. As mentioned earlier, climate change doesn’t only affect the environment. It is everyone’s responsibility to try to mitigate climate change.

Home Insurance Policies Also Affected

We know that the mortgage and insurance worlds are closely related, as when taking out a mortgage, the property used as collateral must be insured.

Insurance companies are already modifying their policies to account for climate change risks, resulting in higher premiums for high-risk areas. This increases household expenses, even if not directly through the mortgage.

New Types of Mortgages to Address Climate Change

Here, we are not talking about more expensive mortgages due to climate change risks but about innovation from new financial products like green mortgages.

Green mortgages are specifically designed to finance homes that are more resilient to climate change or that help with environmental sustainability. These mortgages can easily include grants and subsidies from administrations to promote their adoption. They can also offer lower interest rates and better conditions for citizens buying energy-efficient homes. Here is an article from Hipotecas Plus about green mortgages.


By now, we are likely very aware of the significant relationships between climate change and mortgages. We want to emphasize the importance of education and awareness about climate change and the critical need to understand the severe impacts it can have.

We must understand the magnitude of the problem and help promote political changes and also make modifications in our own habits. To reduce the effects of climate change, all citizens must actively participate by adopting sustainable practices to protect the planet.

Adopting clean technologies and green policies must also be accelerated. As stated in this article, mitigating climate change and its dire consequences is a shared responsibility of all society.

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