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Buyers and banks ignoring Brexit concerns as mortgage lending hits highest level since January

Mortgage approvals for house purchase have hit their highest levels since January.

Banks approved 67,086 home loans in October, up 2% on a monthly basis, according to Bank of England data on mortgage lending.

Remortgage approvals, which had previously dominated the market, were flat at 49,339.

It backs up estimates by banking trade body UK Finance earlier this week that mortgage lending for house purchase had hit a three-month high.

Commenting on the data, Kevin Roberts, director at the Legal and General Mortgage Club, said: “There’s no doubt that Brexit and the ongoing political uncertainty has made some buyers and potential sellers act with caution, despite the current low interest rate environment.

“However, with its growing choice and flexibility, the mortgage market continues to entice borrowers looking for competitive deals.”

Source: Property Industry Eye

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House purchase mortgage approvals hit a three-month high

Home buyers have received some long-awaited good news as mortgage approvals for house purchase increased for the first time in three months, banks claim – but are they being driven by the return of 100% deposit “supersized mortgages?”

Lending data from trade body UK Finance shows mortgage approvals for house purchase were up 3.6% annually and 21.2% on a monthly basis to 45,289 during October.

Lending to home buyers had been falling since July 2018 and hit a six-month low in September.

The boost seems to have come at the expense of remortgaging, with approvals in this area down 13.5% year-on-year to 33,505.

The value of gross mortgage lending across the market in October was up 5.6% to £25.5bn.

It comes amid reports of the return of controversial “supersized mortgages,” which require little or no deposit and were seen as a cause of the 2008 financial crisis.

Comparison website Moneyfacts lists 16 different 100% loan-to-value mortgages that don’t require any deposit but do need a guarantor, which is usually a family member or a charge placed on another property or someone’s savings.

Bank of England data shows that a quarter of mortgages are now for 4.5 times someone’s salary or higher, compared with a fifth just three years ago.

Debt charities and mortgage brokers have warned it is important that borrowers aren’t stretched too far.

However, UK Finance doesn’t seem concerned.

A spokesman told the Daily Mail: “High loan-to-income mortgages are only likely to be available to those who have good prospects for wage increases, such as those in certain professional roles.

“Before they are able to offer any mortgage, lenders must undertake a strict affordability assessment in accordance with the rules outlined by the regulator.”

Source: Property Industry Eye

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Mortgage lending policies ‘creating housing blacklist for tenants on benefits’

MPs have raised concerns that a “housing blacklist” is effectively being created due to restrictions on mortgage lending to landlords whose tenants receive benefits.

The Work and Pensions Committee said it is “deeply concerned” about the extent to which mortgage providers are preventing landlords from renting to benefit claimants – particularly given the “desperate shortage” of affordable housing and the large numbers of claimants now dependant on the private rented sector.

Committee chair Frank Field said allowing banks to operate a “no DSS” policy “is a return to the wicked old days of housing discrimination, with claimants effectively blacklisted for housing”.

It has published correspondence with RBS chief executive Ross McEwan, following concerns about restrictions on mortgage lending to landlords whose tenants receive housing benefit and Universal Credit.

The committee said NatWest, which is part of RBS, had previously come under fire over the case of a landlord refused a re-mortgage because the property was being rented to a tenant in receipt of housing benefit.

It said there are 4.2 million people in receipt of housing benefit in the UK – and research suggests several lenders have this kind of prohibition on lending.

In a letter published by the committee addressing NatWest’s buy-to-let mortgage policy, Mr McEwan said he was “extremely disappointed” with the way the customer case was handled, saying it “did not reflect the values of our organisation”.

Mr McEwan, who reviewed the case personally, said he had identified several areas for improvement, which are now being addressed.

The letter also stated: “In line with a number of other lenders in the buy-to-let market, our mortgage policy for landlords with smaller property portfolios (ie fewer than 10 properties) includes a restriction on letting to tenants in receipt of housing benefit.

“This reflects evidence that rental arrears are much greater in this segment of the market and we are satisfied that this restriction does not contravene equality legislation.”

NatWest has agreed to inform the committee of the outcome of its policy review.

The committee said it has been inquiring into the impact of Universal Credit since January 2017, when it first started to learn of the problems of rent arrears and destitution associated with rollout of the controversial new benefit.

Mr Field said: “The Government claims its welfare reforms are intended to drive employment, but allowing banks to operate a ‘no DSS’ policy is a return to the wicked old days of housing discrimination, with claimants effectively blacklisted for housing and at risk of being senselessly evicted for no greater crime than receiving housing benefit.

“NatWest is now taking a look at its policy, and other mortgage lenders will no doubt follow suit. If the change we need to protect people is not forthcoming voluntarily, we may need to look to regulation.”

A spokesman for trade association UK Finance said: “The majority of lenders do not place restrictions on landlords letting to benefit claimants, with each lender’s policy varying according to their commercial business model.

“Any landlord wanting to let to benefit claimants should be able to find a lender that will allow this.

“We would always encourage individuals to speak to their lender if they have any concerns and research the market to find the best possible deal for their needs.”

Source: Yahoo Finance UK

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Haart Says Government Must Increase Buy To Let Support

The government needs to increase the support it extends to buy to let investors, according to Haart estate agents.

The government needs to begin supporting investors or it will see significant numbers of landlords exiting the buy to let market says Haart. This will lead to a sharp decline in rental property listings.

The call for further support comes amidst the government consultation for longer tenancies. Without greater incentives for buy to let landlords, many will not be prepared to offer longer tenancies. They will then leave the market. This will contribute towards the already-exiting supply and demand imbalance in the private rental sector that is beginning to push rental prices higher, adding more pressure on tenants.

Prospects for the sector without further incentives are looking worrying. The latest data from UK Finance found that gross mortgage lending rose by 7.6 per cent to £24.6 billion in July 2018 year on year. This was ahead of this month’s base rate rise.

However, activity in the buy to let sector did not grow. This is likely due to increasingly punitive tax measures levied by the government, such as reducing mortgage interest relief to the basic rate of income tax and adding a 3 per cent stamp duty surcharge to the purchase of additional homes.

12 per cent fewer landlords are purchasing properties in comparison to the same time last year.

CEO of Haart estate agents, Paul Smith, commented: ‘Mortgage lending jumped a huge 8 per cent on the year in July as existing homeowners sought to seal themselves into a lower rate ahead of the Bank of England’s interest rate hike. The buy to let sector is a fundamental part of the UK property market, and with fewer landlords, we are seeing rents rise. The government must stop penalising those who are willing to invest in the rental market and stop its needless crackdown on the sector.’

Source: Residential Landlord

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Mortgage lending drops to ‘disappointing level’ as buyer interest falls away

Nationwide this morning reported the biggest monthly drop in house prices since July 2012.

The lender said that the average house price is currently standing at £214,745 this month, down 0.5%  from £217,010 in July.

The fall brought annual house price inflation down to 2%, and Nationwide said it expects house prices to finish this year 1% up.

Meanwhile, mortgage lending fell to £3.2bn in July, the lowest figure for 15 months, according to the Bank of England.

Mortgage approvals for house purchase dipped to 65,000, while the number of approvals for remortgages fell 5.5% to 45,000.

Estate agent Jeremy Leaf said the figures were disappointing “in that they reflect a period when we would have expected a pick-up in the market over the spring buying season”.

John Eastgate, sales and marketing director at OneSavings Bank, said: “Buyer activity remains pretty depressed as the market comes to terms with economic uncertainty on top of existing obstacles of a lack of supply and increasing affordability challenges.”

Separately, NAEA Propertymark said that in July the number of properties available per estate agency branch rose for the third consecutive month, from an average in 33 in April, to 37 in May, to 39 in June, and to 41 last month.

Measured year on year, this is 17% up on July last year, when agent branches had an average of 35 properties.

While supply rose, demand shrank for a second month running, to 303 applicants per branch. However, the NAEA said this was entirely in line with seasonal trends.

Source: Property Industry Eye

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House purchase approvals slide from five-month high

The value of mortgage lending rose in July but fewer home purchase loans were approved, data suggests. It comes after mortgage approvals for house purchase hit a five-month high in June.

Lending data from banking trade body UK Finance shows that the number of mortgage approvals for house purchase fell 0.6% annually to 43,976 during the month, although the number of remortgages rose 2.8% to 28,294.

Actual mortgage lending values were up 7.6% annually to £24.6 bn.

Commenting on the figures, Paul Smith, chief executive of haart estate agents, said branch activity is being driven by first-time buyers and called for more support for landlords.

He said: “Conditions are still ripe for further growth in the lending market this year.

“The UK is currently experiencing the highest level of employment in decades, mortgages remain readily available, and rates are still historically low, despite the recent base rate rise.

“On the ground, activity is looking positive – our branches have seen a 10% increase in transactions on the year. This surge of activity is largely being driven by first-time buyers who are continuing to take advantage of their Stamp Duty cut.

“However, landlords are still feeling the pinch with 12% fewer landlords buying property than the same time last year.

“The buy-to-let sector is a fundamental part of the UK property market, and with fewer landlords, we are seeing rents rise. The Government must stop penalising those who are willing to invest in the rental market and stop its needless crackdown on the sector.”

Source: Property Industry Eye

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Mortgage lending rose by 7.6% in July

Gross mortgage lending rose by 7.6% to £24.6bn in July 2018 year-on-year ahead of August’s base rate rise, UK Finance figures show.

Mortgage approvals by the main high street banks fell by 0.8% year-on-year, though remortgage approvals rose by 2.8%.

Peter Tyler, director at UK Finance, said: “July saw steady growth in gross mortgage lending, driven largely by remortgaging as homeowners locked into attractive deals in anticipation of the recent base rate rise.”

Jeff Knight (pictured), marketing director for Foundation Home Loans, agreed that the rate rise was behind the increase.

He said: “The anticipation of a rate rise certainly would have encouraged a spike in activity, and while the purchase market is still less inflated – particularly for first-time buyers – it’s remortaging activity that is helping to maintain momentum and overall growth.

“This is certainly the case in buy-to-let as landlords choose to maintain the size of their portfolios, waiting for a more opportune time to build on it.”

Some expect the remortgage market to continue its strong activity in the coming months.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Lenders remain keen to lend and offer competitive products, particularly in the remortgage space.

“With other incentives such as cash back increasingly being offered to those remortgaging, combined with fears of further potential rate rises, we expect this area of the market to remain particularly strong in coming months.”

However some disagree.

Richard Pike, sales and marketing director at Phoebus Software, said: “The market has been propped up recently by the continuous buoyancy in remortgaging but, with few people now left on variable or tracker rates, this too is likely to slow.

“As we approach the deadline for Brexit even the threat of a no deal is likely to weigh heavy across our economy, how that will manifest itself in the housing market is difficult to predict, but it could bring along a period of stagnancy while people wait to see what happens.”

Source: Mortgage Introducer

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Mortgage lending 2.1% higher year-on-year

Estimated gross mortgage lending for the total market in June was £23.5bn, 2.1% higher than a year earlier, UK Finance’s Household Finance Update for June has found.

The number of mortgage approvals by the main high street banks in June fell by 2.1% year-on-year and within this only remortgaging approvals increased and were 3.4% higher year-on-year.

This was offset by the 4.7% reduction in house purchase approvals and 4.3% drop in other secured borrowing.

Henry Woodcock, principal mortgage consultant at IRESS, said: “Despite a recent RICS survey recording newly agreed sales in decline for the sixteenth consecutive month, gross mortgage lending in June has increased from the previous month.

“While a base rate rise has not yet materialised, the likelihood of an increase is still encouraging remortgagers and first-time buyers to secure the best available deals.

“Lenders are offering an array of incentives, not just a competitive rate, with affordability criteria being relaxed to provide more bespoke deals to applicants. So, there is evidence that lenders are still fiercely competing to secure volume.

“With house prices slowing, the momentum should continue into July, with the market seeing an increase in first-time buyers overtaking home movers for the first time in twenty years.”

Eric Leenders, managing director, personal finance at UK Finance said: “Growth in mortgage lending continues to be driven by remortgaging, as borrowers take advantage of attractive deals ahead of an anticipated bank rate rise.”

Mike Scott, chief property analyst at estate agent Yopa, said that the data provides mixed news for the economy as a whole with low unemployment, wage growth picking up and stable inflation.

He said: “However, business investment is restrained, the pound remains weak against other currencies and GDP growth is at its lowest level for five years, suggesting that unemployment may soon start to rise again. If the economy does turn down, it will inevitably feed through to the housing market.

“The detailed figures for June are not yet available, but it’s likely that the drop in the total number of mortgages reflects a large fall in the number of buy-to-let mortgages, with first-time buyer mortgages holding up better.

“The number of remortgages was up by 3.4 per cent, and some of that money may find its way back into the housing market via the Bank of Mum and Dad.”

Source: Mortgage Introducer

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Croydon has most high-risk mortgage lending

Croydon is the UK’s number one hotspot for high-risk mortgage lending, with 463 risky mortgages taken out in the area in 2017, up 11% from 419 the previous year, peer-to-peer secured property lending platform Lendy has found.

Croydon’s 463 risky mortgages places it top out of all 2,578 postcode areas studied in 2017 while the UK average was just 39 risky mortgages per area last year.

Walthamstow (421 risky mortgages), Wandsworth (363), Streatham (322), and Tooting (319) are the other leading areas for risky mortgages in the UK.

Liam Brooke, chief executive, Lendy, said: “More and more people are stretching their budgets to live in Croydon. Unexpectedly it has become one of the country’s property hotspots.

“Banks are still piling into the owner-occupier market and choosing to lend more to risky mortgage borrowers rather than property developers.

“If just some of this lending went to well-run property developers, it would get more spades in the ground, more houses built and start to alleviate the housing crisis.”

According to Bank of England guidance, mortgages are considered “high-risk” if they are lent at 4.5 times or more of the applicant’s salary.

The number of high-risk mortgages in Croydon reflects the turnaround in its reputation. Once seen as one of the least glamorous parts of London, it has surprised many by becoming one of the hottest areas in the capital’s residential property market.

Lendy explained that Croydon is now established as one of the UK’s leading technology hubs, with over 1,500 tech startups based in Croydon Tech City.

Croydon’s Boxpark, opened in 2017, and the upcoming Westfield Shopping Centre, due to begin construction in mid-2019, are examples of the ongoing redevelopment and gentrification of the area.

Croydon was also the only area in South London that saw house prices rise in the year to February.

The number of risky mortgages in the UK jumped by 15% last year, with 101,380 approved by banks and Lendy thought that the increase in the number of risky mortgages to residential purchasers means that even less funding is available to property developers.

Banks are choosing to pour more lending into the risky owner-occupier market, rather than fund new housing developments that could ease the UK’s housing crisis.

Source: Mortgage Introducer

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Could environmental risk define future mortgage lending?

Mortgage lending mainly revolves around the risk associated with the borrower but what about the property – not just the bricks and mortar but the land it is built on and the air the occupants breathe? Should lenders be paying more attention to environmental risk? Robin Wells, head of sales & marketing at Future Climate Info (FCI), reports.

Lenders run their businesses based upon risk. Mortgage affordability defines how risky a borrower may be, with calculations based on many factors from income to credit history to demographics. But what about the risk on the asset itself? As we get smarter about these risks, will environmental risks that could damage or destroy the bricks and mortar become more defining factors in the mortgage process?

We are collecting more information on environmental risks – from flooding to pollution – and the scale of these risks is becoming more apparent. This, coupled with the continued expansion of the UK’s property footprint onto new land and the increasing risks created by climate change, mean that environmental risk can and should be on all mortgage lenders’ radars.

Surface risk: flooding
The most common and, arguably, well-known environmental risk in the UK is flooding. Around one in seven UK homebuyers have faced a potential flood risk when buying a property in 2017, a trend that picks up in more urban and populated areas. With one in four homebuyers in the capital encountering a potential flood risk last year, this puts London at the centre of the issue, compared to just 11% of those in rural and remote areas.

A combination of environmental factors over the past decades have been attributed to the increase in flood risk. When Michael Fish wrongfully dismissed the imminent arrival of Britain’s biggest storm on record in 1987, he could not have imagined that this type of once-a-century storm might become an annual event all over the world, with storms like Desmond, Eva and Frank.

Earlier this year, the Environment Agency warned that intense bouts of flooding are going to become more frequent, following a pattern of severe flooding over the past 10 years that can be linked to climate change and instances of extreme weather.

Homebuyers are also increasingly concerned ,as well as educated, about the environmental issues that cause flooding; and the implications influence their decision making. Compared to 2016, there were fewer properties at risk of flooding sold in 2017, particularly in urban cities and rural towns.

Yet there remains a lot to be done in the effort to educate and inform homebuyers on the potential issues they might face around flooding. Particularly 18 to 34-year-olds – the UK’s core first time population – are unlikely to perceive flood risk in their area. To address this issue, there have already been calls to introduce ‘flood certificates’ for properties, which, like Energy Performance Certificates, would show when the property was last flooded, the depth and nature of flooding, or give an assessment of feasible recommendations.

Over the next couple of years, it will be interesting to observe whether mortgage lenders will choose to limit their exposure in urban ‘flooding hotspots’. With flooding in the UK set to increase even further, particularly those applications stemming from locations with heavy rainfall on record or in the stormy north, lenders might need an additional review regarding risk before being approved.

Unseen risk: subsidence and sinkholes
Lenders might see subsidence and sinkholes as a surveying issue, and to an extent they are right. Issues with foundations can be fixed by builders or at least be mitigated against with insurance. But the broader issue that’s causing much of the instability – the huge network of mines under the British Isles – is something lenders should be more aware of when assessing risk to property portfolio investment.

The risk of subsidence comes from a result of poor ground quality, foundations or historic mining sites under properties themselves. A recent study found that between January 2014 and October 2017 more than 250 sinkholes formed around Great Britain, at a rate of around one a week.

The study also found that 40% of these sinkholes are the result of historical mining activity, which has left holes and cavities liable to collapse. Mining operations historically extracting metal, chalk and coal are responsible for most sinkhole occurrences, and these took place all over the UK ever since the Bronze Age. The British Geological Survey has records of more than 230,000 active and disused mines under our feet, a list which grows every day.

We have only been able to properly map what’s under our feet for the last few decades, and technology improvements are helping us to find more historic mines. But there are likely to be many more secrets for us to uncover. In the meantime, as developers look further afield to find more land to build upon, it’s possible that more homes are being built upon ground that is not as stable as it looks. Lenders may wish to take a closer look at what’s underneath the assets they are lending against to ensure they are not on shaky ground.

Risk in the soil: contaminated land
It’s not just the mines under our feet that could be a risk to lending. Most people will be unaware of the scale of contaminated soil that our properties sit on, and worryingly no one is fully aware. The government estimates that there could be as many as 100,000 potentially contaminated sites in the UK of up to 200,000 hectares. But that could still be the tip of the iceberg: estimates suggest we are only aware of a fifth of the total contaminated land sites in Britain.

Soil is often contaminated as a result of historical environmental mismanagement. An old gas works, a long-gone petrol station, an industrial rubbish dump from a long-razed factory – these things can all potentially require an environmental clean-up. Heavy metals and acids have often seeped into the soil, and could adversely affect people’s health, a result of a time before stringent regulation or indeed evidence of past misdemeanours.

Heavy metals and chemicals in the soil can affect homeowners digging in their gardens or excavating to build extensions. In recent years, environmental permits and regulation have meant new properties are less likely to have been built on contaminated land. However, the land on which older buildings from the 19th and 20th centuries were built may not have been adequately cleaned or even been flagged as potentially contaminated.

Under 78A(2) of the Environmental Protection Act 1990, the Department of Environment, Food and Rural Affairs (DEFRA) is tasked with supporting and funding the clean-up of any sites that local authorities find to be contaminated. But, in 2014 the government announced a wind-down of all financial aid to clean up contaminated sites, with the programme ending in March 2017. Since then, there has been no support for developers investigating or building on land. Between 2000 and 2017, the government paid out nearly £30 million in remediation to clean up more than 400 sites in England and Wales.

It’s unclear what this has meant for home developers since the funding dried up. There is a concern that prime locations could be overlooked to avoid the costs of clean-up, or that property prices may increase as a result of increased development costs.

For lenders, this unseen risk should be a concern. The scope of contaminated land in the UK could be vast, and a home sitting on soil that needs remediation could lose value.

A rising new risk: air pollution
Over the past couple of years, air quality has also grown to be one of the UK’s most pressing issues. Scientists estimate that as many as 40,000 Britons die as a result of air pollution each year, while the High Court recently judged 45 local authorities to be unlawfully breaching safe levels of nitrogen dioxide (NO2).

Our recent study shows that in 2017 nearly £25 billion was spent by homebuyers on properties in areas of the country where this is likely to occur, meaning that one in 20 residential transactions might have been affected. Again, as an issue particularly in urban areas, homebuyers are increasingly watching reports of poor air quality with growing concern about the implied ill-effects it may have on their health.

But unlike flooding and contaminated land, data on air quality is not a requirement for environmental reports. This makes it harder for homebuyers to find out this crucial information about their upcoming property investment. Future Climate Info has become the first UK provider to make this type of information available at no extra cost – giving homebuyers clarity of insight for the first time on the quality of the air they are signing up to breathe when they purchase a home.

In April, Barclays launched its first ‘green’ mortgage, with a discounted interest rate to borrowers who were buying energy-efficient new-build homes. The initiative was born out of an increase in demand from buyers to live in homes that are energy efficient, and an effort to support ‘greener choices’. Is it conceivable that lenders will offer a similar incentive for ‘clean’ or ‘breathable’ homes in the future?

Our analysis suggests that those buying in highly polluted areas might already be paying a ‘pollution premium’ of 32% more on average in affected areas of the country. These figures are impacted by expensive postcodes in cities like London, Manchester and Nottingham often suffering from high levels of NO2 due to traffic and stagnant weather conditions but could yet worsen in years to come. As opposed to the ‘green mortgages’, regulators and green finance measures by the Bank of England may see ‘pollution premiums’ increase to discourage sales in areas with poor air quality.

With the demand for both ‘clean’ and ‘green’ homes set to increase, this growing environmental risk will be the most interesting to watch over the next couple of years, and may see those professionals with a nose for what lies (and breathes) ahead rewarded for their foresight.

More information reveals more risk
As technology advances, our understanding of emerging risks that are involved in lending is getting better, as are our processes for risk modelling. We now have a better handle on the environmental risk around us. This, in turn may begin to uncover ways to improve lending processes that would have been unthinkable just a few years ago.

Today, mortgage lending mainly revolves around the risk associated with the borrower. Yet the borrower is not what the lender invests in: the mortgage is for the property, and the foundation it is built upon.

So, is it time for lenders to look more into (and around) the homes they are investing in, beyond its structure? If we are able to see, model and mitigate the wider risks to the bricks and mortar, based on the environment they exist within, surely smart lenders will begin to assess how these risks could impinge on their portfolios?

Will future climate shifts adversely affect some building societies with regional lending portfolios? Will first-time buyers be priced out of clean air neighbourhoods? Will elderly people find their equity is reduced due to smarter data finding previously unseen risk under their feet?

For an industry that is based wholly on risk, it makes sense to take note of the environmental risks above and below the bricks and mortar. Having access to the right data and insights to inform these decisions could become a critical issue for businesses as well as consumers.

Executive summary

  • More information is being collected on environmental risks – from flooding, soil contamination, subsidence and sink holes to pollution and air quality. Environmental risks should be on all mortgage lenders’ radars.
  • The most common environmental risk in the UK is flooding. The Environment Agency has warned that intense bouts of flooding are going to become more frequent due to climate change and extreme weather.
  • The risk of subsidence comes from poor ground quality, foundations or historic mining sites under properties. A study found that 40% of sinkholes are the result of historical mining activity, which has left cavities liable to collapse.
  • Another environmental risk is contaminated soil that properties sit on. The government estimates there could be as many as 100,000 potentially contaminated sites in the UK but estimates suggest we are only aware of a fifth of them. In 2014 the government announced a wind-down of all financial aid to clean up contaminated sites, with the programme ending in March 2017.
  • Air quality is another potential hazard – up to 40,000 Britons die as a result of air pollution each year. The High Court recently judged 45 local authorities to be unlawfully breaching safe levels of nitrogen dioxide.

Source: Mortgage Finance Gazette