Is a home loan mortgage for bushfire prone areas any different to a home mortgage in other areas?
When renovating or building in bushfire prone areas, there are certain things to consider in proving your case to a mortgage lender.
Amy Beattie is a mortgage broker, and can tell us more about financing your home renovations or new build.
In this video, I speak with Amy Beattie, Mortgage Broker and owner of Good Green Home Loans. This is part 2 of my conversation with Amy. You can watch Part 1 here.
Good Green Home Loans is here to help you find the right home loan at a great rate – using only environmentally responsible lenders who aren’t using their profit and power to support the fossil fuel industry.
In this video, I asked Amy these questions:
- Is borrowing for properties in bushfire prone areas different to standard borrowing?
- What do you need to consider when understanding your risk factors for financing?
So let’s dive in.
Amelia Lee + Amy Beattie (Good Green Home Loans)
[Amelia Lee]: Are there specifics to know when it comes to financing for bushfire prone areas in terms of understanding the different BAL ratings, the Bushfire Attack Level Ratings, and what that might mean for how much money you’ll be able to access? Or what deposit you’ll have to save up in terms of the difference in how the finance, the bank, might see your risk levels? And how much they’re willing to.. What percentage of the property they’re willing to finance?
[Amy Beattie]: Yes, so the percentages of the property they’re willing to finance are definitely crucial overall when you’re in that zone of kind of 70% or 80% plus. You’ve got mortgage insurance costs that will be added to your loan, and there has to be room under that percentage that we’re talking about, for the cost of the insurance.
So 90% is probably about where the total cost of your project needs to be capped. Including a contingency of unknown bucket of money for unexpected expenses. Because then when you add on the mortgage insurance, the total loan ends up being 92%, 93%, 94%. 95% is the limit, generally speaking, for most banks. And many won’t go that high. So you really begin to reduce the different bank options you’ve got to choose from.
So 90% is definitely the top end of the total project, including contingency. And banks don’t specifically talk in terms of BAL ratings directly. So, you know, those kinds of … So the scale of the BAL rating doesn’t really matter to the bank as such.
But banks assess the overall risk of the property itself in the valuation, and that risk analysis is about seven or eight different risk factors. And generally for the risk factors, the scale is 1 to 5. Where 1 is low risk, 5 is high risk.
And the more numbers 1, 2, 3 you can have, and hopefully, the majority of the risk factors are numbers 1, 2, and 3. Then if there are numbers 4 and 5 in there that are related to bushfire, again, the bank is weighing up everything. So if they can mitigate the bushfire risk by an insurance policy that covers the bushfire risk, then they’re not going to be so hung up on those risk factors when all of the others are strong. So again, it comes back to that overall picture, definitely.
When you’re borrowing under 70%, and up to 80%, you also take out a layer of the mortgage insurance company being involved and their whole new set of policies having to be met, or their criteria having to be met. So the bank has to answer to the mortgage insurance company who says, ‘yes, we will insure this loan for you’., or ‘no, we won’t because of these things…’
And the policies of the insurers vary substantially. So, again, another reason why you need to get your mortgage broker involved early is so you can find the bank that has the mortgage insurer that has the policies that work with your particular circumstances. So it’s very complex.
[Amelia Lee]: That’s really interesting to understand those kinds of risk criteria and the different layers that the bank will assess that by. So, you know, if your property is a BAL Flame Zone, some people may think that that means that it’s going to be impossible to finance. But from the sounds of that, it sounds like it’s actually just how it sits in all the risk factors that the bank is going to assess as part of that combination.
And if you’re only borrowing, say, 70% of the property’s value, and you’ve been able to calculate that once it’s got a house on it built to flame zone, that you’ll mitigate the risk and those types of things… Am I understanding that that means that you actually stand a better chance?
[Amy Beattie]: Absolutely. So you won’t find it impossible just because you’re a BAL, the highest level of BAL risk grading. Everything else about your application will then be scrutinised. And if it’s strong on all of those other levels…
And we’re talking about if you’re wanting to build, and in order to build you need a 30-year loan term, but you’re 65 years of age… The banks, it doesn’t matter what the flame zone is, that’s not a position that the bank wants to put anyone in financially. So everything else has to be considered. But if it’s strong in all of those other factors, the flame zone won’t matter, as long as it can be insured.
[Amelia Lee]: Yes, it’s quite interesting actually, to sort of remember that this is … It’s a cocktail of different ingredients, that it’s not just okay, a blanket statement of ‘you’ve got a property with these zones on it, it’s going to be impossible. It’s like actually, if you’re committed, it’s a case of knowing that you can be financially sound in those other areas, that you can have a sufficient deposit. And yes, you’re following those avenues of…
I know, being self-employed for so long, the property purchasing that we’ve done, we’ve always had to be geared at a much lower rate than if I was employed. But that then has enabled us to be able to argue the point in terms of our ability to pay back the loan and those kinds of things and achieve the mortgage outcomes that we needed. Because we just knew the rules. We knew what we needed to do in terms of…
[Amy Beattie]: Exactly. So again, that’s what your broker’s there for. And, you know, you go to your broker and the best thing you can do, or your bank if that’s how you do it, you go directly to your bank… You literally have to put all your cards on the table, and you have to speak openly and honestly, so that the banks can do the right thing by you, knowing the full picture and assess it thoroughly.
So, you know, sometimes, as a broker, I feel like I need to sort of poke and prod to get the full picture from people because they’re nervous about saying, ‘Oh, you know, there’s this that’s complex, or there’s this that’s a bit tricky’, but the more open and frank you can be about the full picture and answer all the questions that are thrown at you, the better chance the brokers got, or you have of finding the right bank that is willing to help you out.
[Amelia Lee]: Yes, and I always found that a much easier conversation to have with a broker than with the bank manager. Because the last thing you wanted to do was throw red flags.
[Amy Beattie]: Exactly. And that’s the thing when you go to a bank manager of one bank, who has one set of rules that he has to live by with every client, the moment you say… I don’t know, ‘it’s a bushfire prone zone’, the moment he says ‘sorry, we won’t finance a project that’s in a bushfire zone’ and you’ve completely ruled them out. So if you go to a broker, you tell them everything, they can just help you go straight to the right bank that they know accepts those tricky parts of your circumstances.
[Amelia Lee]: That’s fantastic advice, Amy.
THIS IS PART 2 OF MY INTERVIEW WITH AMY BEATTIE, GOOD GREEN HOME LOANS. WATCH PART 1 HERE.
This interview is part of our Rebuild + Build Better series.
Be sure to stay tuned as we share more information and expertise in helping you rebuild after bushfires, or build homes more resilient to climate conditions and in bushfire prone areas.
Resources mentioned in this video:
Get in touch with Amy here >>> https://www.goodgreenhomeloans.com.au/#