Climate Change: Housing Insurability, Mortgage Lending and Financial Resilience

My Lords, climate change clearly poses a long-term risk to financial stability and household resilience. The Government’s remit to the Financial Policy Committee ensures that it considers climate-related risks as relevant to its primary objective of maintaining financial stability. The Climate Change Committee’s recent report identified declining insurability and reduced mortgage access as credible risks, and the Government will reflect this evidence as they prepare the fourth national adaptation programme.

I thank the Minister for that reply. I hope he has read the adaptation report of the Climate Change Committee, in which it warns very clearly about the effects of increased flood and wildfire risk to the financial sector and the economy more generally. The Minister will remember the effect of the US subprime market on the UK economy from 2008 onwards. In the UK we can already see that property values, insurance availability and mortgage lending are all affected by climate change. Can he give further details as to how urgently the Government are addressing these risks?

I am grateful to the noble Baroness for her Question. I am very conscious that she is far more expert in these matters than I am. As she knows, the independent Climate Change Committee has made recommendations on the preparedness of the UK for current or future climate change risks. The Government will consider these recommendations as part of the next national adaptation programme. The noble Baroness mentioned households and mortgages. The Bank of England’s assessment suggested that it would take a severe shock to borrowing costs, household incomes or the cost of essential goods to put aggregate debt servicing under pressure. The Government do not expect climate change to have an immediate impact on mortgages or household resilience, though they recognise the long-term pressures that climate change could have on a property’s value, insurability or suitability as security for mortgage lending. The Government will, of course, continue to work with industry to address any market failures.

My Lords, on the issue of financial resilience and climate change, has my noble friend seen the CBI report that came out a few weeks ago, showing that the net-zero economy is now worth over £100 billion and is promoting growth in all parts of the UK? Having said that, what does he make of the leader of the Opposition’s now opposition to net zero and wish to repeal the Climate Change Act 2008 and deselect Tory candidates who support net zero? What impact would that have on our economy?

It is a great shame what my noble friend says about the Opposition; with such a significant issue as climate change and the importance of net zero, we want a cross-party consensus to drive forward the measures necessary in this country. He is absolutely right to say that economic growth is our number one mission, but without economic growth we cannot meet our climate change targets, and by investing in climate change measures we can drive greater levels of economic growth. If we step back from that, it would be a great shame and would do serious damage to our economy given that, as my noble friend says, the net-zero economy is growing so strongly.

My Lords, the Minister is obviously correct that we really do need to step back from this divisive and completely unsubstantiated move away from the consensus on the need to do something about the changes in the climate we are seeing around us day in, day out. What the Minister said about systemic risk to financial services and long-term risk was reassuring, but I wonder whether I could ask him to have a word with his noble friend, the noble Lord, Lord Stockwood, about the Financial Services and Markets Bill currently going through this House. There are grave concerns that the provisions we put in three years ago to a Bill that the Minister will remember are being watered down when they need to be strengthened.

I am grateful to the noble Baroness for her question. She is absolutely right in what she said about climate change. The Intergovernmental Panel on Climate Change—the world’s foremost authority on climate change science—established in its sixth assessment report that climate change is real and is being driven by greenhouse gas emissions. It predicts that if the rate of warming is not limited to 1.5 degrees centigrade above pre-industrial levels, we risk severe and irreversible damage to our planet and our people. Of course, it will be good if we maintain a cross-party consensus on the measures necessary to tackle that. I heard what the noble Baroness said about financial stability. She will know that the Bank of England’s December 2025 financial stability report set out the committee’s assessment of climate-related risk to UK financial stability: it is low relative to other countries in the shorter term.

My Lords, the Minister has been saying some very important things about climate change: that it is happening and is very dangerous. But I do not really understand why he keeps using the term “longer term” because, quite honestly, it is happening now. It is not only about economic and financial stability but about the safety and well-being of people. It seems to me that this Government, judging from the legislation coming through at the moment, do not have any sense of urgency. Can the Minister take that back to his department and talk urgency?

The Government have already committed significant investment in the transition to net zero, including £2.6 billion to decarbonise transport, £1.4 billion to support the uptake of electric vehicles, £2.7 billion a year for sustainable farming and nature recovery, and £13.2 billion to support the rollout of heat pumps and other low-carbon technologies as part of the warm homes plan, so I do not accept what the noble Baroness has said.

My Lords, London is the world’s leading international centre for commercial insurance and reinsurance, which is a subject of this Question. Does the Minister agree that insurance companies, with their considerable long-term expertise, are best placed to determine how the effect of climate change is reflected in premiums and that, going forward, that knowledge should influence those—not least our planners—determining where it makes sense to build, so that we get on with housing and infrastructure as we need to do?

The noble Baroness is absolutely right about the importance of getting on with housing and infrastructure, and that is what this Government are seeking to achieve. She is absolutely right to say that a resilient and affordable insurance market is necessary for enabling businesses and households to recover quickly from climate events. The Climate Change Committee has assessed that the insurance gap is currently low relative to most countries. However, without sufficient adaptation, the number of properties that do not have the necessary insurance is expected to grow as climate risks increase. The Government are committed to ensuring that the long-term impacts of climate change are managed. The Government will strengthen the UK’s approach as part of the fourth national adaptation programme, which will set stronger adaptation objectives to improve preparedness for climate impacts.

My Lords, the noble Lord, Lord Campbell-Savours, is taking part remotely. I invite the noble Lord to speak.

My Lords, on housing insurability, what consideration is being given to the problem of premium escalation and refusal to insure in areas that have not flooded but are shown as at risk on flooding mapping due to climate change? Would it not be helpful if we could have some review on how local authorities disseminate such information, its effect on premiums and how it is used during property conveyance? I declare an interest as a resident of an apartment where flood protection measures have enabled us to avoid the increased premiums I am referring to in this question.

As I said, the Climate Change Committee has assessed that the insurance gap is currently low relative to most countries. Flood risk, though, is the most immediate concern for UK households. The Environment Agency’s latest flood risk assessment indicated that around 6.3 million properties in England are at risk of flooding, increasing to 8 million as a result of climate change. The Government are working with Flood Re to ensure the scheme remains effective and financially sustainable through to its planned end date of 2039, and discussions are ongoing to understand and tackle the medium-term pressures.

My Lords, yesterday the Church of England General Synod reaffirmed its commitment to net zero. Back when we were first looking into that, I remember sitting down with the chief executive of one of the world’s largest insurance companies and asking him why he was so interested in climate change. He said that extreme weather events are the biggest risk for insurance companies. Does the Minister agree with me that if we are going to make insurance affordable, we have to reduce extreme weather events? It is not about adapting; it is about getting down to net zero.

With the greatest respect, I think it might be both. We have to adapt and take long-term action to get down to net zero, as the right reverend Prelate says. I agree on both points.

My Lords, once we reach three degrees of warming, no one can take on the risks, so there will be no more insurance and: “The financial sector as we know it ceases to function”. Those are the conclusions of Günther Thallinger of Allianz, who warns that Governments will be unable to backstop the resulting losses. Given this stark warning, what discussions have taken place with the Prudential Regulation Authority on the systemic financial stability risks of climate-driven insurance withdrawal?

I am grateful to the noble Earl for his support for many of the Government’s measures in this area. As he knows, the Financial Policy Committee is responsible for identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The Government’s remit to the committee makes clear that it should continue to regard the risks arising from climate change as relevant to its primary objective. The Bank of England’s December 2025 financial stability report set out the committee’s assessment of climate-related risk to UK financial stability, which is that it is low relative to other countries in the shorter term.