Climate change risks are set to play a growing role in mortgage valuation and lending decisions over the coming decade, according to experts.

For UK homeowners, the most immediate threat to property values arising from global warming is increased flood risk.

Speaking at the launch of a report for Family Building Society entitled ‘Later life borrowing in a world that’s living longer’, one of the report’s co-authors, London School of Economics emeritus professor of housing economics Christine Whitehead, expressed grave concerns about the threat of climate change on property values.

She said: “I have nightmares about this, because in a certain wider environment the capital value of housing may start to look like the capital value of retail, and that is a really scary thought.”

Talking later to Mortgage Strategy, she added: “There are a whole set of issues around capital valuations that I think are very scary. Whether or not they will come up in the next 10 years is not so straightforward, but clearly there have to be improvements to the existing stock to make it less unhealthy and unhappy. There will be the need to get rid of gas, to increase insulation and maybe remove certain materials.”

Whenfresh, which describes itself as “the UK’s residential property data supermarket”, operates automated valuation models for lenders and environmental factors are becoming increasingly significant.

Chief executive and co-founder Mark Cunningham says: “There are a number of properties that banks have on their books where, if lenders knew then what we know now, they might not have lent.”

Properties on flood risk plains, shorelines and low ground are particularly vulnerable to devaluation, he adds.

“There is an interesting political play here, because the banks are unlikely to be told not to lend, and the government is unlikely to implement anything which is material in terms of damaging housing stock. If you took every house on every shoreline and said it has a value of zero as of tomorrow, that would be catastrophic, so no one is going to do that,” he says.

Instead, Cunningham hopes a lot of effort will be put into remedial planning, such as creating stronger flood defences and water drainage around properties. Planting more trees and hedgerows can be extremely helpful in soaking up groundwater and binding soil together.

He says: “The invisible element that we do not have an answer for yet will be what happens if the soil type changes on the basis of an increase in temperature. A house might be built on fairly stable ground, but if there is a two-degree temperature rise, will the ground underneath it behave differently?”

He warns that some modern construction materials, such as fibreglass, do not recover as well from flooding as traditional bricks and mortar.

“One of the great things about older properties is they have proven that they can survive. Buildings that are made out of brick or stone tend to dry much more quickly than those using more modern methods of construction.”

Cherry Mortgage and Finance director Matthew Fleming-Duffy says: “Globally we are looking at fire risks, heatwaves, droughts and, of course, rising water levels, which is the most important thing for the UK. Mortgage lenders, particularly lifetime mortgage providers, ironically, are very aware of flood risk. Of course, the UK is very exposed to flood risk. It is a major question that you get [from equity release providers] that you do not get asked by all conventional lenders.”

Fleming-Duffy says that is because equity release lenders are looking at an unlimited term, as the borrower could live for a further 30 or 40 years, so they are used to paying more attention to long-term risks affecting the property.

He believes the UK should look to the Netherlands for help against flood risk: “The Dutch have become world champions at building flood defences, so we should start doing what they have been doing. This is something that really has to be pushed by the UK government and not left to housebuilders and consumers. If this problem is left unchecked, at some point people will find their homes are suddenly unmortgageable or uninsurable.”

Fleming-Duffy also wants to see the government create a trusted green homes information hub where homeowners can get reliable advice on how to improve the energy efficiency of their property and find reliable local contractors. He says that financial incentives like the Help to Buy scheme could be directed at encouraging people to upgrade their properties.