Today’s risk averse approach to mortgage lending means that when a new application is made, a plethora of checks are undertaken that analyse the risk based on the applicant and their ability to repay the loan, combined with a mortgage valuation that assesses a property’s suitability for loan security.
So while the applicant and property value is assessed, a potential gap in this process exists related to environmental risk. When you take into consideration factors such as recent high profile flood events – including the stat that one in six homes are now considered potentially at risk of flooding – plus consider the increasing number of brownfield sites that have been (or will be) developed, it creates an argument that environmental risks should be considered as part of the overall lending process.
With this in mind, I believe that the time is right for lenders to also consider environmental factors in the overall risk assessment. At present lenders invariably rely on the solicitors acting for them and the client to undertake this activity. However, not only is this activity often weeks after the mortgage application, they are delegating a key element of risk to a third party with all the issues that can entail.
A survey from Landmark Information Group previously raised some interesting points on this matter, as it identified that 80% of UK homeowners stated they would not buy a house that was at risk of flood, yet a YouGov survey by the Know Your Flood Risk campaign earlier this year found that only 20% of respondents had checked their flood risk before moving into a new home. If customers are informed of potential risks much earlier in the process, it will not only give them more choice, it will also stop a lot of the abortive work and issues that arise a lot further into the purchase process when problems are discovered
By incorporating such data at the front-end decision process, it will deliver a more detailed, dependable and informed risk assessment and ultimately means that both lenders and clients are making decisions armed with all pertinent information.
