Britain’s biggest building society has stopped granting mortgages on some properties where there is a high risk of flooding but said this affected only “a very limited number” of homes.
Nationwide’s head of property risk, Rob Stevens, said the lender used mapping technology to identify which homes were vulnerable to flooding, and it would decline to grant a mortgage to buy a property it deemed to be at high risk.
His comments in an interview with Bloomberg could spark renewed debate about what will happen when the UK government’s subsidised flood insurance scheme ends in 15 years’ time. A fortnight ago it emerged that UK weather-related home insurance claims had hit a new record, with flooding accounting for half of last year’s £573m total bill.
Some big mortgage lenders, including Barclays and NatWest, have previously made clear they will still grant mortgages for properties where there is judged to be a high risk of flooding, provided that adequate home insurance is in place. However, a former Barclays chief executive has warned that “further consideration would need to be given” regarding the suitability of granting mortgages on high-risk properties in future years, particularly once the official Flood Re subsidised cover scheme ends in 2039. HSBC has said it was “critical” that Flood Re was extended.
Stevens told the Guardian that “there will be rare occasions where we are unable to lend due to the associated risk of lending on a specific property”.
But he added that Nationwide continued to lend on properties that were designated as flood risks, and that it had not pulled any mortgage offers. All its checks around flooding were done before an offer was made, so that the borrower was aware upfront.
Nationwide said that, like all home loan providers, it needed to lend responsibly and therefore there would be some properties it could not grant mortgages on, “albeit when it comes to flooding, this is only on a very limited number”.
Bloomberg reported Stevens saying that, “if we’re doing a 40-year mortgage term and there’s something there that I know could fundamentally change for the customer, I can’t not know that”, adding that he had personally phoned some buyers to warn them that their prospective homes were at high risk of flooding.
However, Stevens told the Guardian that, “in the overwhelming majority of cases” it was able to lend on homes even where issues had been identified, assuming that mitigating factors had been put in place – for example, flood defences.
Nationwide did not provide details of how many homes might be affected.
Policies in this area will vary from lender to lender. In a letter to MPs last year, Matt Hammerstein, formerly chief executive of Barclays UK and now head of its UK corporate bank, said: “Barclays does not have a policy that restricts the availability of mortgages to borrowers in flood-risk areas – we lend irrespective of the flood-risk band.”
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Restrictions on lending would only arise because a borrower was unable, or unwilling, to obtain home insurance.
Meanwhile, NatWest last year told MPs that “we do not exclude lending in any flood-risk areas”.
A jump in weather-related home insurance claims last year was fuelled by a succession of storms, including Babet, Ciaran and Debi. Those who live in areas with a high risk of flooding may be able to access insurance through Flood Re, which is a joint initiative between the government and insurers offering subsidised insurance to households at the highest risk of flooding in order to make cover more affordable.
Looking at disclosed data, Barclays revealed in February that just over 90% of the properties in its UK mortgage portfolio were judged to be either in a “negligible,” “very low” or “low” flood-risk band, with 1.6%judged to be in the moderate risk band, and 2.6% and 1.2% in the high-risk and very-high-risk bands.