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Business Mayor
19-05-2025
- Business
- Business Mayor
Climate disasters are raising risk of US home repossessions, warns research group
Stay informed with free updates Simply sign up to the Climate change myFT Digest — delivered directly to your inbox. Climate-related disasters are raising the risk of home repossessions in the US and could cause billions of dollars in annual mortgage-related credit losses over the next decade, according to a new report by a risk-modelling group. The report was released as the economic toll of the latest tornadoes that swept through Missouri and Kentucky, leaving at least 25 people dead and scores injured, was still being calculated. Uninsured damage from flooding, as well as the depreciation of home values and rising insurance premiums from increasingly destructive climate disasters, could lead to as much as $1.2bn in credit losses in 2025, said risk-modelling group First Street. It was estimated that mortgages on about 19,000 properties could be repossessed — or foreclosed, as the process is known in the US — this year due to climate risk. That figure is estimated to rise to $5.4bn in losses from almost 84,000 repossessions by 2035, according to First Street calculations. In 2024, lenders began the repossession process for about 253,000 properties in the US, according to real estate data company ATTOM. 'Mortgage markets are now on the front lines of climate risk,' said Jeremy Porter, First Street's head of climate implications. 'Our modelling demonstrates that physical hazards are already eroding foundational assumptions of loan underwriting, property valuation and credit servicing — introducing systemic financial risk,' he said. Rising global temperatures are leading to more frequent and extreme weather events, such as storms, drought and flooding. The increase in climate-related disasters is already driving insurance losses, which hit $320bn globally in 2024, according to Munich Re, the world's largest reinsurance group. In 2024, the US alone suffered damage costing at least $182.7bn as a result of extreme weather and climate disasters, according to the National Oceanic and Atmospheric Administration. In response, private insurers have raised premiums, stopped underwriting new policies, or dropped coverage entirely in high-risk areas, such as locations in California and Florida, which experience higher than average policy non-renewal rates. In turn, higher insurance premiums can lead to higher mortgage and credit card delinquency, according to a January report by the Federal Reserve Bank of Dallas. These risks to a borrower's creditworthiness — stemming from climate change — can ultimately 'threaten household financial health and potentially impact the stability of the financial system', wrote the bank authors. St Louis was among the Midwest cities hardest hit by tornadoes this weekend © Reuters In its report, First Street — which analysed how past wildfire, flooding and hurricane events affected repossession rates, as well as indirect factors such as insurance premiums and home prices — found that insurance coverage was a crucial factor in recovering from disasters and avoiding repossession. For example, because standard homeowners insurance typically covers storm wind and wildfire damage, repossession rates were, in fact, lower for homes damaged by those types of disasters than those that were not because of insurance payouts, according to First Street. In the case of some storms, federal emergency and disaster funding brought in another 'influx of cash' to a community, added Porter. Flood insurance, on the other hand, is often optional and costly. Many areas of the US are also not considered nationally designated 'Special Flood Hazard Areas', where federally backed mortgage holders are required to buy flood insurance. But in those areas, heavy rainfall can cause flooding, resulting in property damage. This gap in flood insurance coverage leaves many properties exposed and is a major factor in increasing a homeowner's risk of repossession, according to First Street. Overall, a combination of financial stressors due to climate risks can amplify a borrower's risk of defaulting, said the report, from high insurance premiums and broader economic strain to home equity losses from property value declines. 'We have this climate debt built up that we're trying to correct for', Porter told the Financial Times. 'At this point, part of that is pricing risk properly so people know what they're getting into when they buy their home.' Where climate change meets business, markets and politics. Explore the FT's coverage here. Are you curious about the FT's environmental sustainability commitments? Find out more about our science-based targets here
Business Mayor
30-04-2025
- Business
- Business Mayor
BoE watchdog tells banks and insurers to fix climate risk ‘gaps'
Stay informed with free updates Simply sign up to the Climate change myFT Digest — delivered directly to your inbox. Banks and insurers have 'gaps' in how they address climate change risks, such as flooding and extreme weather, the Bank of England has warned, but fixing them will hamper lending to some households and companies. The BoE's Prudential Regulation Authority has instructed banks and insurers to do internal reviews on climate risk and said it would check how the guidelines were being put into effect six months later. Some UK banks do not have climate-related data on where their borrowers have property, leaving them unable to assess their vulnerability to floods, heatwaves or wild fires, the PRA said. No British lenders were able to fully quantify how climate change would affect their activities in different scenarios, it said, adding that most did not consider the issue a material danger except for the 'reputational risk' of being associated with funding fossil fuels. The financial institutions could be exposed to losses that 'undermine their safety and soundness', the PRA said on Wednesday, unless they addressed the shortfalls in climate risk preparation. The watchdog published updated guidance on what it expects in the assessment of both physical risks, such as floods, as well as so-called transition risks stemming from the shift away from carbon emissions. The central bank guidance indicates it maintains a focus on climate-related risk, despite the backtracking on climate change policy by many companies and some leading western governments over the past year. Read More Legal & General to expand pensions and sell housebuilder Cala The EU has watered down its sustainability reporting requirements, while US President Donald Trump has reversed many of the climate and clean energy policies of his predecessor Joe Biden. The US Federal Reserve recently withdrew from the central banks in the Network for Greening the Financial System. The PRA's move comes as an independent UK government adviser separately warned on Wednesday that the country's progress on adapting to climate change was 'either too slow, has stalled, or is heading in the wrong direction'. David Bailey, executive director for prudential policy at the PRA, said 'considerable progress has been made' in tackling climate risks at banks and insurers, but added: 'There is still more to do, and it remains critical that firms continue to focus on these risks.' Tackling these gaps would cause people who live in areas prone to flood risk to face higher mortgage rates and insurance costs. 'In the extreme', it said, that could 'lead to loss of mortgage availability in some localities of the UK'. It said this could also push up funding costs for companies with high carbon emissions, adding: 'This could in turn deter economic activities in those sectors.' Insurers had generally treated climate change more like a box-ticking exercise than a strategic risk, the PRA said, adding it had found 'limited evidence that results are being used in decision-making'. Recommended Insurers had also excluded 'tail risks' from their scenario analysis, the PRA said, and had focused on physical and legal risk but had 'very rarely' considered risks stemming from the impact of the economy's transition to net zero carbon emissions. However, British insurers are pushing the government to do more to reduce flood risk after large payouts on weather-related damage to people's homes and possessions last year. 'We continue to urge the government to commit to an annual investment of at least £1bn a year in flood defences as part of its upcoming spending review,' said Louise Clark, manager of general insurance policy at the Association of British Insurers.
Business Mayor
30-04-2025
- Politics
- Business Mayor
UK preparations for flooding and extreme weather ‘inadequate'
Stay informed with free updates Simply sign up to the Climate change myFT Digest — delivered directly to your inbox. The UK government's preparations for the flooding and higher temperatures triggered by climate change are 'inadequate' and in some cases have got worse, its official adviser has warned. 'Progress is either too slow, has stalled, or is heading in the wrong direction,' the Climate Change Committee (CCC) said on Wednesday in a report responding to the threat climate change poses to the UK's food systems, infrastructure, health, homes and economy. Warmer, wetter winters have combined with rising sea levels and drier, hotter summers to raise the risk of both flooding and droughts in the UK, creating a need for much clearer goals on improving the country's climate resilience, it said. The committee's first report on adaptation under chief executive Emma Pinchbeck, a former UK energy lobbyist, scrutinised delivery of an adaptation plan published by the previous government in 2023. The Labour government has not significantly shifted the dial on already poor adaptation planning, the CCC's report said, despite its manifesto commitment to 'improve resilience and preparation across central government, local authorities, local communities and emergency services'. Cross-bencher Baroness Brown, chair of the CCC's adaptation committee, said the UK should prepare for a disaster similar to the floods that hit Valencia, Spain, last year, when a year's worth of rain fell in just three hours and 20 minutes, killing more than 200 people. 'We need government to recognise this is the disaster that could be happening tomorrow.' More than 6.3mn properties, half of the UK's top quality agricultural land and over a third of railways and roads are already at risk of flooding, the report said. The government should set long-term targets to cut flooding risk in the UK, and ask the National Energy System Operator to consider how flooding and heat and water scarcity could affect the UK's power and grid operations, it said. The upcoming government spending review should ringfence adaptation spending, Brown added. 'The government is under a lot of pressure to make cuts, but this isn't the one to cut.' Recommended The report also highlighted the threats posed by extreme heat to the UK's public health and critical infrastructure, as it can cause rail lines to buckle and power lines to sag. It highlighted research suggesting there could be 10,000 heat related deaths a year by the middle of the century, and a 7 per cent hit to GDP. No single area of adaptation spanning the economy, health, built environment, infrastructure and land management was good enough, the report said. Water supply management has worsened since the CCC's previous progress report in 2023, with a slow rate of leakage reduction, as had elements of marine habitat monitoring. Some policies on flood resilience had worsened. Friederike Otto, senior lecturer in climate science at Imperial College London, said the government was doing an 'OK job' on cutting CO₂ emissions. 'However, they simply can't afford to maintain the status quo on adaptation, which is leaving the UK dangerously exposed.' Read More BofA Forecasts Stronger 2025 for Nordic Economies A spokesperson for the Department for Environment, Food and Rural Affairs said it was investing 'a record £2.65bn to repair and build flood defences, protecting tens of thousands of homes and businesses and helping local communities become more resilient to the effects of climate change'. 'We will now carefully consider the findings of the Climate Change Committee's report, and we will respond in due course.' Where climate change meets business, markets and politics. Explore the FT's coverage here. Are you curious about the FT's environmental sustainability commitments? Find out more about our science-based targets here
