Climate change stress testing carried out by the Reserve Bank of New Zealand – Te Pūtea Matua (RBNZ) reveals river and surface water flooding may pose a greater risk to residential mortgages than coastal flooding.

Asked to assess exposure to river and surface water flood risk in the Auckland region, banks revealed more than a quarter of mortgage lending in Auckland was in the flood zone – equal to 12% of national mortgage lending – under a severe climate change outcome.

Just under 1% of mortgage lending in Auckland is within a flood zone were sea levels to rise by a metre.

“This exercise has now shown that river and surface water flooding looks to be a greater climate-related hazard for residential mortgages than coastal flooding, in terms of total lending,” RBNZ said. "Owners may see a fall in property values in flood zones as we gain an improved understanding of the risks and this is priced into the housing market.”

Detailed analysis of the results will be published next year.

To assess coastal flooding, RBNZ asked banks to identify the value of their mortgage exposures that would be affected by permanent sea level rises. Across the participating banks, 2.5% of mortgaged properties were exposed to the flood zone with 50cm of sea level rise, and 3.8% at a metre.

At 50cm of sea level rise, 22% of national lending at risk is in Christchurch, and 14% in Wellington. Regionally, Hawke’s Bay is particularly at risk, with 15% of mortgage lending in the region’s flood zone for 50cm of sea level rise, and almost 20% for a metre.

“Although the exercise was limited to flooding risk for residential mortgages, it will help us explore financial system risks from climate change as we build and design further climate-related stress testing activities,” Deputy Governor Christian Hawkesby said.