Sustainable Banks Pave the Way for Resilient Homeownership in Australia's Changing Climate
Along with the joy of the holiday season in Australia comes the devastation of the fire season. For me the memories of the 2019-2020 bush fires are all too clear. We were in the South coast visiting my parents when the sky blacked signaling the armageddon to come. (of course, this is when my mum insisted that we take a quick drive to Berry to go and see a dining room table, but that is another story of human determination and denial).
A recent study by Stanford, the University of California in Los Angeles and the Australian National University suggests the population living in the “wildland-urban interface”, where nature meets development, has doubled. Even more striking, the population in areas most prone to wildfires has grown by over 160%.
This is perhaps a natural result with Australia obsession with population growth despite limited housing supply. Some fire-prone regions may offer more affordable housing options.
While Australians are moving to riskier places, climate change is making them even riskier.
According to the Royal Commission, natural disasters will become “more complex, more unpredictable, and more difficult to manage,”. Australia is likely to see national-scale “compounding disasters” where impacts such as fire, flood and storms hit simultaneously.
Banks and financial institutions find themselves at the forefront of managing risks associated with lending in these high-risk zones.
They manage these risks through:
Property Valuation Precision: Banks meticulously evaluate property values in fire-prone areas to gauge associated risks. Collaboration with insurers aids in comprehending coverage, a pivotal factor in risk assessment.
Tailoring Loan Eligibility: Adopting a risk-based approach, banks tailor loan terms, interest rates, and eligibility criteria based on the perceived risk of the property. Homes in higher-risk areas might face stricter lending conditions such as a lower loan to value ratio.
Protecting their assets: Banks mandate homeowners to secure adequate insurance coverage, including protection against wildfire-related risks.
Building Code Harmony: Banks may stipulate that borrowers adhere to codes designed to fortify properties against fire risk, promoting the use of fire-resistant materials and other preventive measures.
We have seen that Sustainable Banks are ahead of the game taking further action.
Forward Looking Analysis: Sustainable banks employ forward looking scenario analysis and stress testing which incorporate environmental factors to anticipate the impact of various risk scenarios, including those tied to wildfires. This helps the banks understand vulnerabilities and proactively manage risks.
Community Engagement: Sustainable Banks are also stepping into the community engagement area, providing homeowners in fire prone regions with insights into the financial risks associated with their chosen living environment. Empowering residents through education promotes proactive risk reduction.
In the words of my son “banks are not just financial entities but guardians of responsible lending.”
This made me laugh – I see bank logos with angel wings. Essentially banks are sustainable because it makes financial sense.
At sustainable Home Loans we look to support Sustainable Banks who take a forward-thinking approach by balancing the dreams of homeowners with the realities of living with climate change. These institutions responsibly navigate the Australian path to homeownership through pioneering strategies that prioritize safety, sustainability, AND FINANCIAL STABILITY.