Westpac NZ has started factoring natural hazard risk into its home lending decisions and will share that information with people applying for a mortgage.
From Wednesday 11 November, home-loan applicants will receive a Westpac Natural Hazard Risk Insights report on the property they want to buy, interest.co.nz reports. RNZ says Westpac is the first bank in New Zealand to publicly factor the growing risk from climate hazards into lending decisions.
What is in the report?
A sample report Westpac gave RNZ rated a property on four sliding scales: floods, landslides, coastal hazards and the "surrounding area". The last one reflects how exposed neighbouring properties are, which can differ from the property itself.
The data comes from ClimSystems Powered by SLR, a New Zealand-based environmental data company. Westpac's head of consumer lending, Jo McGregor, told interest.co.nz it is the same information the bank considers when deciding on a loan. The bank wanted customers to have the same information it had, she said.
Will Westpac turn down a loan because of flood risk?
Westpac says not on that basis alone.
"We are not moving to risk-based pricing and we don't expect to be declining applications solely on the basis of this risk," said Sarah Hearn, Westpac NZ's managing director of product, sustainability and marketing. "However, in a small number of cases, it may mean the amount we're comfortable lending on an at-risk property is less than it may previously have been."
McGregor told RNZ this would affect "no more than two" percent of cases. In those cases, the bank might change the loan amount or the term.
She gave the example of a beachfront bach where some of the land could be eroded. "Maybe instead of lending a million against the property, we might say, we'll lend up to $800,000 against the property, or alternatively we might say - look, we don't want to lend over 30 years, but we'll lend over 20 or 25 years."
A property rated just above low on flood risk would make no difference to the bank's thinking, she said, although the buyer might want to look into it further.
Existing mortgages are not affected, RNZ reports.
Can you challenge the rating?
Yes. Westpac says its data shows the inherent risk of a property, but it does not know whether owners have built retaining walls, added drainage or taken other steps to reduce the risk.
McGregor told interest.co.nz that customers who disagree with an assessment and have their own information can share it with the bank. Westpac will also take councils' hazard data into account, she told RNZ.
Why now?
"We're experiencing severe storms more frequently, and those storms can have a devastating impact on people's homes and livelihoods," Hearn said.
Insurers have already moved. RNZ notes that some now use risk-based pricing for home insurance, and AA Insurance paused new policies in Westport earlier this year because of the town's extreme flood risk.
A Westpac survey in June found almost everyone said a property's natural hazard risk was important to know, but far fewer felt confident about how to find it, according to RNZ.
What other information can buyers use?
Westpac's report is one source among several. Before you commit to a property:
- Read the LIM. Since late last year, councils have had to include natural hazard information in land information memorandum (LIM) reports, RNZ says.
- Check council hazard maps. Many councils publish flood and landslide maps online. A national flood map is also being developed, with a first version due early next year, according to RNZ.
- Get an insurance quote early. McGregor told interest.co.nz that banking and insurance "go hand in hand" in making sure a property is secure and insured. A quote before you go unconditional can flag problems.
- Ask about past work. If the seller has done drainage or stabilisation work, ask for the paperwork. It can help with both the bank and the insurer.
Asked by RNZ whether other banks would follow, McGregor said: "I think they should."
If you are weighing up a purchase, our round-ups of where the main banks' mortgage rates sit and October's house value figures have more on the wider market.
