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Embedding environmental risk data into lending practices for better risk management

With all the climate change regulations bearing down on banks in New Zealand, lenders need to adopt and integrate comprehensive data strategies throughout the digital mortgage lifecycle to best manage climate change risk.

A perfect storm for change

As extreme climate events such as flooding increasingly impact life in New Zealand, a number of environmental risks pose specific and ever increasing challenges to the accurate determination of property valuations and the digital mortgage process. The use of curated environmental risk data that’s comprehensive, easy to access and fast to implement is providing powerful benefits for lenders and borrowers navigating mortgages.

Better understanding of environmental risks

When a home buyer applies for a mortgage, it’s increasingly important that they and the lender both understand any current or future environmental risks associated. These include the property being vulnerable to flooding, cyclones, landslides, coastal erosion due to rising sea levels or higher tides, and other natural hazards.

In keeping with delivering the very latest and most powerful property insights in the market, CoreLogic has been accumulating comprehensive area and property-based environmental risk data for the past several years. This information significantly enhances the ability of both lenders and borrowers to accurately assess the risk to properties through natural events and the potential impact on property valuations. This has been done in collaboration with key bodies, including partnerships with global environmental hazard specialists such as Ambiental Risk Analytics and reinsurance specialists such as Munich Re.

Balancing environmental data with increased digitisation

While these environmental risk datasets have been expanding, the COVID-19 pandemic has accelerated the digitisation of mortgage services.

Consumers increasingly expect a digital end-to-end process, everything from their valuations to the electronic exchange of documents. Bankers and lenders want and need data that can help them more accurately value properties. Providing digital valuations is one of the core components of this process and lenders can use environmental risk data to value properties and get early indications of unwanted risk.

Increased digitisation also means mortgage originators can be more than just a conduit for finance: lenders can position themselves to advise on other time and money saving services for their valued customers. such as insurance, and advanced new financial products.

Incorporating this customer information into the underwriting processes – and matching this data with extensive property information – can help to speed up loan approvals and reduce the waiting period for clients. Where an applicant may not qualify for a loan, this is also discovered sooner, enabling better management of expectations.

Using environmental data to reduce lender challenges

If incorporated early in the digital mortgage process, environmental risk data can facilitate more informed decisions, less paperwork and manual procedures, and helps both lenders and customers to identify and then manage risk.

Lenders can use data to form a view of whether a property is at a higher or lower risk of natural events and whether a digital valuation and mortgage is appropriate.

Incorporation of hazard and risk data within a regular portfolio review process can facilitate the identification of portfolio and asset risks earlier and high-risk properties needing to be checked by qualified valuers in the field can be pulled out of the digital process to be managed manually.

For example, if a property is exposed to a flood risk or sits within a coastal hazard zone, it would be more prudent for the process and valuation to be handled personally and manually rather than digitally.

Furthering green credentials

Both lenders and consumers are increasingly aware of these risks, and the complex issues associated with property ownership and accelerating climate change concerns.

As environmental, social and corporate governance (ESG) criteria become more embedded in the minds of consumers, lenders may choose to pre-qualify properties with green credentials, such as solar panels and energy-efficient designs. Or they could offer interest rate discounts for these types of properties.

Viewing additional environmental risk information over a variety of timeframes can allow lenders to make more detailed risk assessments on properties and areas.

Property developers and investors that need to quantify the exposure of their current and prospective portfolios can also benefit from environmental hazards data.

Strengthening client relationships

CoreLogic has been collecting property insights for more than 30 years and has curated data from more than 7,000 government and corporate sources. Datasets and tools include construction and development data, AVMs (automated valuation models) and historical valuations.

This information can help enhance lenders’ digital mortgage capability throughout the mortgage lifecycle: from origination, business optimisation and risk management of portfolios with exposure to frequent extreme weather events.

Our rapidly growing suite of datasets can be easily combined with other CoreLogic property data or technology to offer a comprehensive picture of a property’s entire history.

This 360⁰ view of properties combines physical attributes, current and historical market valuations, and clear visual data incorporated from both satellite and street-level sources.

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