Your mortgage may soon be capped by the insurer's last good year

Under an approach now circulating among risk committees at several mid-sized lenders, the term of a mortgage would no longer be decided by the borrower's age, income or appetite. It would be decided by the last year an insurer is still prepared to write buildings cover on the address. A thirty-year loan on a coastal street would return from the system as eleven, with no explanation attached and no field on the form in which to request one.

The mechanism would not be a forecast. It would be arithmetic. A mortgage requires the property to stay insured for the life of the loan, so the life of the loan cannot outlast the availability of the insurance. The bank would not be saying that the street will flood. It would be saying that somebody else has stopped saying it will not, and that the difference between those two positions is not the bank's to carry.

Applicants would meet the number as a slider that stops early. The adviser's script under this model would avoid the word climate entirely in favour of insurability horizon, a phrase with the useful property of sounding like a technical parameter rather than a date. Nobody would be told that their house has a last year. They would be told that the product is not available beyond a certain term, which is the same sentence with the weather removed.

“We do not model the sea,” a spokesperson for a lenders' association would be expected to say. “We model the policy. If the policy ends, our security ends with it. We understand that from the outside this looks like a prediction. From the inside it is a condition precedent, and we would ask people to notice that we are the last ones to find out.”

The effect would be visible at street level long before it surfaced in any national figure. Two houses four hundred metres apart would be offered different terms, and therefore different monthly payments, and therefore different buyers. Valuation would follow lending rather than the other way round, because a house that can only be bought on an eleven-year mortgage is a house with a shorter queue outside it, and the queue is what the valuer is actually measuring.

The shortened term would also arrive dressed as prudence, which is the part that would be hardest to argue with. Nobody would be refused credit. Nobody would be warned that the property is at risk. Borrowers would simply be offered a loan that ends sooner and costs more each month, and would be congratulated at signing on how quickly they would own the place outright. The bad news would be delivered entirely in the form of good news.

None of this would require a new rule, a ministerial announcement or a single line of legislation. It would require only the existing obligation to keep a mortgaged property insured, and a spreadsheet in which the insurer's last good year is already a column. The column exists. What has not happened yet is anyone deciding to print it on the offer letter.