Lender avoiding high-risk flood zones

March 11, 2024 — EXPERTS say the Desjardins Group’s recent announcement that it will no longer offer new mortgages in certain high-risk flood zones in Quebec is a sign of things to come.

Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction, said that as far as he is aware, the move is the first instance of a major lender in Canada pulling the plug on new mortgages in high-risk flood areas.

“There has been a great deal of international literature which has been warning that this kind of thing would happen and it is my feeling that this might be the thin edge of the wedge,” he told Thompson’s. “We may soon see more lenders go this route. This move is quite important and probably a sign of things to come.”

He said he hopes Desjardins’ actions may also encourage the federal government to act quicker on a promised national flood insurance program.

The Quebec-based caisse populaire is also one of Canada’s largest p&c insurers and is no longer offering flood coverage in high-risk zones.

The company announced in February that it would no longer approve mortgages for properties in ‘high-current zones.’ An area is considered a high-current zone if it has a one-in-20 chance of being flooded in a given year. Such areas are also known as 0-20 year flood zones.

Desjardins spokeswoman Chantal Corbeil said the company continues to support its members who wish to sell or refinance their property already financed with it by allowing financing under certain conditions.

But now, only buyers of properties whose sellers already have a Desjardins mortgage can obtain financing — for up to 65% of the loan in some instances.

In addition, the property must be immune or protected with embankments, hydraulic transparency or other mitigation efforts.

Ryan Ness, a climate adaptation expert with the Canadian Climate Institute, said he also believes that Desjardins’ decision for high risk zones is likely just the beginning.

“The trend will continue,” he said. “More and more lenders will be unwilling to finance these homes.

“The best path forward is for the federal government to implement its national flood insurance program, which it promised to do in last year’s budget.

“That will provide virtually all of these high-risk homes with an option to be at least partially covered by insurance, presumably giving lenders more confidence that their collateral is protected.”

Mr. Ness said a public high-risk flood insurance program has its own challenges and risks.

“Private insurance companies are not offering flood insurance for the 10% — 1.5 million or so — homes at risk of flooding in Canada because they can’t charge premiums that people could afford and still afford to cover losses for these houses.

“If the federal government gets involved in a public backstop insurance program, it will have to be subsidized for the people who are impacted.”

And he said that with flooding expected to become more of a problem due to climate change, the subsidies will have to increase.

Ultimately, he said, this doesn’t send the right signals to people to make different choices.

“A flood insurance program has to be accompanied by a bigger-picture strategy to slowly reduce Canada’s housing risk to flooding, which means, in some cases, investing in protecting at-risk neighbourhoods. And in some cases, it’s going to mean governments helping people relocate away from places that are just no longer practical to live in.”

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