Why Climate Change Could Push Mortgage Interest Rates To “Scary” Levels
Interest rates on home loans could be pushed to “frightening” levels if the world’s major money lenders consider Australia to be dragging its feet in climate change action, economists have confirmed.
And with Finder’s latest consumer sentiment report revealing that nearly a third of Australians say they face mortgage stress, the results could be catastrophic for many homebuyers and shut the next generation out of the housing market altogether. .
“I can’t predict how much the cost of borrowing will increase if there is no meaningful action on climate change, but we know it will be higher,” said economist Nicki Hutley, advisor to the Climate Council of Australia. “We could definitely see interest rates rise over the decade.
“When you think about housing affordability issues already, it’s going to be very scary. Our children will indeed be impacted by the rise in mortgage rates. “
Treasurer Josh Frydenberg raised fears of an interest rate hike last week when he spoke of the need to reduce greenhouse gases to net zero by 2050, or face international retaliation.
He warned that reduced access to foreign capital markets would impact the cost of home loans, business loans and infrastructure projects.
Banks borrow money cheaply and lend it at a higher price to homebuyers. If the banks’ costs go up, they pass the difference on to mortgage creditors.
“Basically, because Australia is part of the global capital market, banks get some of their funding internationally,” AMP Capital said. Chief Economist Shane Oliver.
“We are seeing more and more that international lenders take into account the green climate policies or the green benchmarks of the countries and companies to which they lend.
“As the world becomes more carbon conscious, it is likely that more and more lenders will be less inclined to lend to countries that do not appear to be playing their role in reducing their carbon emissions, banks will therefore have to raise their interest rates to attract them.
These rates could end up rising even more as lenders reassess the risks of lending money to countries already considered to be more vulnerable to the effects of climate change, Hutley warned.
“I recently asked the Governor of the Reserve Bank at the launch of a foundation about the implications of climate change on interest rates and he also spoke of the potential for rising costs of capital.”
At the Australia Institute, chief economist Richard Denniss said interest rate hikes could be even more dramatic than expected if Australia does not align.
“The treasurer was right that foreign investors might start asking us for an interest rate premium, but it’s worse than that,” he said.
“If we are seen as a high risk place to invest because we are heavily exposed to coal and iron ore as exports rather than tourism and education, and we continue to wire how we do not are not going to diversify our economy, then our exchange rate will go down.
“Then foreign investors will want an even higher interest rate to compensate for the low exchange rate in the future.”
Australia’s Big Five banks are already pushing to fine tune and disclose their green credentials to tap into the appetite of global ‘now on steroids’ capital to do business with companies interested in reducing carbon emissions said Karl Mallon, chief executive of Climate Valuation, which provides analytics for major banks and homeowners.
“So when the capital wants to go to green places, there is less for elsewhere,” he said. “With little action on climate change, there is more reluctance to provide mortgages and insurance for people likely to be affected.
“And we are already seeing climate change starting to kick in, with people inundated but unable to afford insurance.”