Climate Change, Flood Risk and Mortgages in the UK: a Scenario Analysis

Abstract

With rapidly increasing global average temperatures, physical risks originating from a changing climate may affect the financial health of households and the stability of the financial system. This article estimates the proportion of UK common equity tier 1 (CET1) capital exposed to flood related mortgage defaults under three climate scenarios: Present Day (2015), 2 degrees C Low Population Growth (2080) and 4 degrees C Low Population Growth (2080). The article finds that approximately 0.11% of UK CET1 capital is at risk of flood related mortgage defaults, whilst under the 2◦C and 4◦C Low Population Growth scenarios, 0.21% and 0.30% of CET1 capital is exposed to flood risk respectively.