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Could climate change impact your mortgage application?

From flooding to coastal erosion – some properties are more at risk from climate change than others. But what does it mean for your mortgage?

Many lenders are now considering the risks associated with the impacts of climate change when deciding whether or not to lend against a property. 

Here, we look at the factors lenders – including HSBC from December 2021 – may take into account when considering whether a property offers suitable security for a mortgage.

How could a property be affected by climate change?

Flooding

According to the Environment Agency, the UK is experiencing more frequent flooding – with 5.2 million properties (that’s roughly 1 in 6) at risk in England alone.1

As well as increased temperatures, the UK has been on average 6% wetter over the last 30 years (1991 to 2020) than the preceding 30 years (1961 to 1990).2  

When purchasing a property, your solicitor or licensed conveyancer may carry out an environmental search to check for any issues with flooding that might affect the property’s value.

Coastal erosion

Coastal erosion is the loss or displacement of land, due to wind, waves and tides. 

With extreme weather and rising sea levels, more properties will be at risk of complete loss of value due to coastal erosion.

Landslide

A landslide is the movement of rock, debris or soil down a slope. It can be caused by various things, including heavy rainfall or drought, which makes the land unstable. 

If this appears to be happening on or near the property, it’s important to let your mortgage lender and insurance company know. 

You should also seek specialist advice from a structural surveyor or geologist, for example, especially if you plan on starting any major building or drainage work.

Subsidence and sinkholes

Subsidence and sinkholes occur when the ground underneath a property collapses or sinks, reducing the value of property and land. 

Soil expands in wet weather and contracts in dry weather. With climate change causing wetter winters and drier summers, the soil beneath our homes can become unstable.

Sometimes, the foundations can sink – putting a strain on the structure of the building and causing cracks to appear. While there has been an increase in subsidence claims in recent years, buildings can experience minor cracking without there being a subsidence problem.3 

Bear in mind, properties built near large trees (where the roots disturb the soil) or on top of old mining quarries, can also be susceptible to subsidence and sinkholes. When purchasing a property, your solicitor or licensed conveyancer will advise you whether a mining search is needed. 

How could climate change affect my mortgage application?

When you apply for a mortgage, your lender will usually arrange a valuation of the property for mortgage purposes. This valuation confirms to the lender whether or not the property value is sufficient to support the mortgage amount requested.

The outcome of the mortgage valuation can affect how much you could borrow against the property.

At the same time, many lenders are now completing further checks to assess whether or not a property is at risk due to climate change. 

The outcome of these checks can affect whether or not they will lend against that property, regardless of the outcome of the mortgage valuation.

As a result of these checks, it can be harder to get a mortgage on a property that’s at a ‘high risk’ of being impacted by climate change – especially if it’s uninsurable, due to continuous flooding or the land being unstable, for example. 

What you can do before you apply for a mortgage

Before you apply for mortgage, or borrow more on your existing mortgage – it’s important to consider if the property could be at risk of climate change. 

If you’re concerned that the property could be at risk, you may want to instruct a surveyor to complete an in-depth survey of the property – rather than rely on the lender’s own valuation.

Keep in mind – most lenders, including HSBC, make it a condition of your mortgage that you take out and maintain buildings insurance for the term of the mortgage. 

If your lender considers the property to be at risk from the effects of climate change, they may also ask you to confirm you have suitable cover in place. 

You may also be asked to provide evidence of your insurance cover each year until you repay your mortgage.