Flood Plains are for Floods

by Viv Forbes

Photo sourced from the UK: Mail Online
River quango has allowed 190,000 new homes on flood plains since 1996 despite concerns they could be uninsurable

Every month or so TV screens are filled with images of desperate people somewhere battling a flood.

Floods have been reshaping the Earth for billions of years. And some past floods were far larger than modern floods, evidenced by the width of many flood plains - seldom are they completely flooded today.

The majority of cities and many country homes were built on flood plains, and for good reasons - closer to water, with fertile soil, better groundwater, flat country that is easier to build on, near good fishing holes and shady trees, and periodically re-fertilised with silty topsoil. Sensibly, many early settlers built their homes on stilts.

 

We hear alarmist stories about the soaring costs of floods. That is not usually because the floods are bigger – it is just that more people are building more costly homes and infrastructure on flood plains near the mouth of scenic rivers.

Those who choose to build/live on flood plains must accept the costs that go with it – occasional flooding and expensive flood insurance. But a nice home on flood-prone land will usually cost less than a similar home on the hill with views.

Long term flood problems are increased when government steps in and “helps” those who buy/build on flood-prone land with repair subsidies, public works or insurance caps. This allows risk-takers to escape the real cost of their decisions. Then more people build on flood plains.

Flood diversions and levees may not help – too often they just shift flood water from one piece of land to another. Commonly, they also increase water speed, thus increasing the erosive power of the flood.

But governments must ensure that essential infrastructure is relatively flood-proof – roads, railways, airports and electricity should remain operational during most floods. And strategically placed dams will moderate the extremes of both floods and droughts.

Global warming can’t be blamed for more floods because, for 17 years, there has been no global warming.

Flood plains are for floods. Those who choose to live there must expect to get flooded.

Viv Forbes,
Rosewood    Qld   Australia
forbes@carbon-sense.com

Photo sourced: Can you move an Entire town up hill YES YOU CAN in QLD
This blog documents the flood damage to Grantham in the Lockyer Valley Qld and how the houses were rebuild on higher ground off of the flood plain. 

Previous related post:

Learn and construct to cope with future natural disasters

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Lenders Mortgage Insurance - The Ned Kelly of the Insurance Industry

Most of you would know that if you wish to take out a housing loan from a bank or lending institution, where you have less than 20% of the value of the property, you will be required to pay a premium for Lenders Mortgage Insurance (LMI), that is usually offered by a third party insurer, not the financial institution.

The amount of this premium will depend on how much less than 20% deposit you have.

LMI insurance protects the lender from any losses that they may incur as a result of you defaulting on the loan or ceasing to make payments etc.

Even though the lending institution has a first mortgage and is able to sell your property, the LMI protects them against any short fall in sale price against the outstanding loan balance.

You may, or may not know, that LMI only protects the lender and does not offer any protection to the borrower. The LMI provider may then also take legal action against the borrower to recoup their payment to the lender.

Now, here is the “Ned Kelly” bit. Your Lenders Mortgage Insurance is taken out for the term of the loan and in many instances this is 30 years. However, through a change in work location, or for other reasons, you may decide to sell the property and purchase a home in another town, or need to purchase a larger home for an increasing family.

In this situation, you payment of premium for LMI, ostensibly for 30 years cover, is simply forfeited and your new home proposal is regarded as a new proposal subject to a new premium altogether – is this double dipping or not?

The key word is of course that the term of the policy is equal to the term of the loan, so when you pay out your loan, the term of the agreement has effectively ended.

There is some relief possibly available, depending on the wording of the policy, and you may get a partial refund of premium if you sell you home within 12 to 24 months and repay the loan. However, if you have held the property for longer than this then the premium paid, ostensibly for 30 years, is simply forfeited to “Ned” (the insurer)

You may also be able to get a partial refund within the first couple of years of you get a new valuation (rising market) that effectively reduces your Loan Value Ratio (LVR)

If you wish to substitute the security offered (your home) there may be no refund but no additional premium payable but the valuation must support the same quality of property.

If on the other hand you substitute security and there is an increase in the LVR or insured amount, then this will be deemed to be a new risk and a new proposal and a new premium payable on the new risk. A refund on the cancelled policy may be payable, but unlikely after one to two years.

So it is therefore preferable to have an ongoing loan of the same value with substituted security rather than just sell up and pay out the first loan and then identify and purchased another property with a new loan.

I doubt that many people actually get to keep their home for the full loan term of 30 years covered by Lenders Mortgage insurance and so these insurers, even though they have assessed the risk over the full term of 30 years, in a lot of cases, simply get away with your money after just a few years – just like “Ned Kelly”!