One in four Auckland mortgages are on homes in one-in-100-year flood zones

Monday, 27 March 2023

People flooded out of their homes tell meeting of their financial hardfship. 'I'm paying rent and mortgage at the same time. I'm paying more than I'm earning every week,' said one. National MP Chris Penk speaks of the help banks may have to give th

Nearly a quarter of banks’ residential mortgage exposures in Auckland are at risk in a one-in-100-year rainfall flood event, data from the Reserve Bank shows.

The city was lashed by torrential rain in the Auckland Anniversary weekend, which led to widespread flooding.

Despite banks’ flood exposure, deputy governor Christian Hawkesby said: “Banks’ capital ratios are resilient to the most severe flood sensitivities in the exercise when each shock is considered in isolation.

“We have more work to do to understand how flood risk could potentially compound with other risks to the financial system, such as the risks borne by recession.”

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West Auckland residents packed into a school hall on Saturday to share their experiences from the 2023 Auckland Anniversary weekend floods, and to call for a ‘managed retreat’ for the area.

Banks are facing tougher scrutiny over the risk climate change poses to their financial stability.

“As flood risk increases, the financial system is likely to face simultaneously a broader range of climate-related risks, such as global and national transitions risks, including from more stringent emissions pricing over time,” Hawkesby said.

“Our forthcoming Climate Stress Test will further improve our understanding of the combination of these risks to banks’ balance sheets. The scenario for that stress test is due to be published later this year.”

Banks are under mounting pressure to cut special deals beyond their ordinary hardship provisions for people they lent money to on homes that were prone to flooding.

Many cannot move back into their flood-contaminated homes, and are paying both their mortgages and for rental accommodation.

But many fear their insurance accommodation money will run out before they are able to move home, or are paid out to buy homes in safer locations.

These fears were voiced at a meeting of the West Auckland is Flooding (WAIF) meeting held on Saturday, in which the group called on the Government to make money available to help people facing paying both mortgage repayments and rents.

National MP Chris Penk even raised the possibility of banks developing a programme of special help for people flooded out of their homes, including discounted interest rates.

“I heard the minister Michael Wood say, when Vanushi Walters (Labour MP) and I were in Muriwai earlier this week that ideally the banks would come to the party in terms of providing some mortgage relief for those affected.”

That could include discounted home loan interest rates, or mortgage holidays, Penk said.

Labour MP Phil Twford (dressed in a yellow shirt) sits beside National MP Chris Penk (dressed in a blue jacket) at the WAIF meeting ofg flood-hit homeowners in West Auckland.

“Whether that’s a mortgage holiday or reduced rates, whatever. Ideally the banks would do that voluntarily, but if not then the minister said there would be option for the Government to force their hand to do that.

“Anything sensible or practical that will help those of you in this plight, we would support,” he said.

The stress-testing by the Reserve Bank required banks to calculate loan loss provisions for mortgages affected by the flood zone, taking into account customers’ ability to service the loan and changes to the underlying value of the property.

The rationale was that people whose homes had flooded were likely to come under financial stress, and be unable to make their mortgage repayments, even as the value of their homes fell.

The Reserve Bank assumed price falls on individual homes could be as high as 30% to 60%.

If owners of mortgaged homes could no longer get insurance, banks faced the risk of losses on existing loans, the Reserve Bank said.

Inland flooding is not the only climate risk banks face in their mortgage businesses

The Reserve Bank said 2.5% of the total dollar value of residential mortgage lending is exposed to the coastal flood zone with 50cm of sea level rise.

That rises to 3.8% in a more severe outcome with one metre of sea level rise.

Hawke’s Bay is the region most exposed with more than 10% of homes with mortgages at heightened risk should sea levels rise by 50cm, or 20% if they rose one metre.

Banks told the Reserve Bank they were working to better understand the nature of flood risk on their home loan businesses.