The ground risk specialist explained the bigger lenders have until September to provide initial feedback to the BoE. The requirement will then be rolled out to smaller lenders over the next two years.
However, Terrafirma recommends lenders of all sizes start familiarising themselves with how their portfolio may be impacted by the potential risks of climate change.
Indeed, the UK’s biggest banks and insurers will take part in the Climate Biennial Exploratory Scenarios (CBES) this year, which is likely to influence the shape of regulation for the wider market, Terrafirma said.
In advance of these events it has updated its ground-instability climate risk model NGRM: ClimateTM to help banks and building societies assess the risk to their mortgage book. It will also help them to meet their regulatory responsibilities and feed back to the Bank of England.
Extreme weather poses greater risks
Current climate models for the UK, project more extreme weather, with acute events posing greater risk to residential mortgage portfolios.
The Bank of England’s Climate Financial Risk Forum (CFRF) provides authoritative guidance for mortgage lenders when it comes to assessing the climate change-related risks associated with residential property, but every lender needs a way to do this.
The guide, published in June 2020, refers to a range of relevant data sources for firms to consider including physical risks like flooding, ground stability, natural ground hazards, coastal erosion and transition risks like Energy Performance Certificates (EPCs).
Terrafirma has therefore updated NGRM: Climate to provide a lender with all the ground data and information recommended by the Bank of England’s CFRF guide.
Using NGRM: Climate, banks, building societies and specialist lenders of any size will now be able to access property-level climate data on soil subsidence, coastal erosion, cliff collapse and landslides. Data on mining and other sinkhole-forming natural processes are also included to offer lenders a more complete understanding of the full range of ground instability risks to property.
Tim Farewell
Dr Tim Farewell joined Terrafirma in January 2020 to oversee the development of NGRM: Climate following almost two decades researching and modelling soil movement and other ground hazards for the insurance and water industries.
He said: “It is vital that hazards associated with ground movement aren’t considered in isolation, which is why NGRM: Climate offers lenders four key modules covering the potential risk of subsidence and coastal erosion, cliff collapse and landslides, as well as mining and natural voids which can result in sinkholes.
“Terrafirma is the only company offering a dataset that enables mortgage lenders to begin to understand the risks in their portfolio from all ground hazards.
“A distinctive element of NGRM: Climate’s unique market offering includes direct access to Terrafirma’s ground risk experts to talk through the data and what it means for each individual lender. It is so precise that it can even pinpoint the risk to individual properties.
“This will support the integration of the new ground risk data within climate stress testing, risk management and underwriting. Importantly, direct access to Terrafirma’s science team will help residential mortgage lenders understand more about the impacts, so they can make safer and sustainable lending decisions.”
To get in contact with Terrafirma, lenders can speak to Dr Tim Farewell by emailing [email protected]
