Cautious banks could change their approach to home loans in flood-prone areas
“Lenders take that into consideration at the time of the natural disaster – at the time or right after, up to 12, 18 months after – in terms of whether they’re lending,” he said.
“The expert wants to confirm that it is still standing, that it still has four walls and a roof and that you can live there.”
The value may not change at all, or it may be reduced by as much as 10%, he said, or more commonly the loan-to-assessment ratio may be capped, meaning the buyer has to find a larger deposit.
In Brisbane, Madd Loans mortgage broker George Samios has seen the move to full appraisals create a backlog and delays of up to two weeks for clients.
Assessment costs nearly tripled from the standard $330 to $1,000 each due to demand, he said.
“I now ask all my clients to do a free flood search,” he said, citing local services such as FloodWise and FloodCheck that show a property’s risk.
“There was a time when a lot of people didn’t care because the real estate market was so hot.”
He said cheaper neighborhoods at risk of flooding likely had higher insurance premiums.
“If you can avoid it, spending a little more money to get into a hilltop suburb, it could be worth the $100,000,” he said.
Herron Todd White Brisbane managing director Gavin Hulcombe said his team was responding to requests from lenders for full property inspections that outline the risk.
“It may have been minor flooding in the backyard, it may have impacted the lower level of the house – but it could all be storage that doesn’t have a massive impact,” a- he declared.
“There are other circumstances where the living areas of the house are flooded.”
Even the value of an insured property can be affected because buyers will pay a premium for a home that is not prone to flooding, he said.
Anyone shopping in a flood-affected area now has access to more data and maps than in previous disasters and can judge the level of risk they want to assume, he added.
Home values may be affected for the pockets most exposed to natural disasters, but over time the Brisbane market has held up since the last floods a decade ago, for example.
“After a flood, memories fade and as memories fade, the discount people apply to these properties diminishes over time,” he said.
In western Sydney and the lower Blue Mountains, mortgage broker Rob Lees has yet to hear lenders getting more cautious, but is working on a loan for a home in McGraths Hill which has been hit and expects to a full assessment.
For pockets around Penrith or Emu Plains that have been flooded, he advises potential buyers to be cautious.
“I would like to stay away from a lot of these areas,” Mortgage Choice Blaxland, Penrith and Glenmore Park manager said. “I think the way climate change is evolving, it certainly highlights the risk.
“It will have to have an impact on the valuations, certainly in the areas that have been flooded, the values will certainly have gone down and it will reduce the opportunity to live in these areas.