We heard Terrafirma speak at a recent conference and immediately saw potential for our mortgage and insurance clients to benefit from their property data API. We sat down to talk with
their founder and CEO, Tom Backhouse to find out more about the company.
Could you please start by telling me what it is that Terrafirma does?
We have expertise in identifying and communicating ground risk from both an engineering and data-science perspective. We fuse this knowledge with new technology and big data, so we’re taking the world of geological science into a new, more modern
Our goal is for everyone to be able to access well interpreted advice and opinion, for a fraction of the cost that it currently does. Our aim is to make all relevant information available at the front of the property and land life cycle so that lenders,
insurers and consumers can make informed decisions on how to build property, where to invest and why.
What’s your background and why did you decide to start Terrafirma?
I founded Terrafirma in 2015. I'm a geologist at my core, I worked in Cornwall as a geologist after graduating from university and became really interested in why there was a massive disparity between the small number of people that come out of university
and study geology, engineering and technical engineering, and areas like mortgage lending, insurance and the planning process for example.
I'm passionate about communicating complex issues into useable advice and practical solutions, so the growth of the business initially was around education. Terrafirma was focused on educating solicitors in conveyancing firms to potential ground hazards
and why that’s important to them as a professional, and that's how the business grew really.
Who are Terrafirma’s typical customers?
Initially we grew the business to provide solutions in the legal sector. We wanted to remove the liability of the conveyancer communicating things that they knew little about, and environmental risk is one of those factors.
Consumers also had little to no idea as to what the potential risks or the financial liability that they're inheriting could be. There's a lack of knowledge and understanding about the ground and the advice that does exist is very primitive.
If you're buying a house, you don't learn before you move in that your insurance premium might be significantly higher than if you chose to buy another house because there's a tree in the garden that's going to influence the way the ground moves, or that
your utilities are completely shot and are going to end up costing you an absolute fortune. It's happening in a huge amount of property purchases. The problem is the issues don't rear their heads until a lot later, so they're not necessarily going
to be a problem at the point of transaction, they're going to be something that impacts you later.
How is Terrafirma going to tackle this?
We’re expanding what we can offer in the form of a report and moving into a data-as-a-service business. Our goal is to integrate with software and platforms, align ourselves with proptech and fintech and be able to integrate our data, advice
and opinions into the key decision-making carriers of mortgage lenders and insurance companies.
Okay. Has this data-as-a-service been implemented yet?
We are in an exploratory phase with one of the top UK high-street lenders to put conditions on a mortgage based on the Terrafirma risk model. The bank will give you a mortgage if these problems are addressed at the point of transaction. Whilst this
means that some people might pull out of the purchase, we feel great importance to expose hidden ground risks so all parties can make informed decisions. What's more likely to happen is that because everyone is aware of the issue, it can be addressed
at the point of purchase either with the seller or the insurance company, and they won't have to face that financial liability in the future.
Banks are in a unique position to dictate how due diligence occurs. Currently it is done based on the individual consumers by looking at things like credit rating. But they have never done that with the property that they're actually investing in.
So there's a shift in the way the banks are viewing their assets, particularly in their portfolio and the book of business.
Additionally, mortgages are becoming more long term, past 25 years to 35 and 45 years. There’s an understanding that the world is going to be a very different place in 30 years time, and that's not just from a climate change perspective, that's
also from changing socio demographic and economic climate
Drawing on our expertise we believe the environment is going to be very different in 30 years and the ground will inevitably also change. You won't be able to use some parts of the country in the same way that you do now. If you’re making a
decision to buy a house or to develop land, without considering what it's going to be like in the future, then you could potentially have a huge financial liability. That's where Terrafirma comes in, we are able to extract data and analyse what
land is going to devalue, where it can be used for different purposes and put that information right at the front of the decision-making process.
Is your API currently available in the market?
The National Ground Risk Model (NGRM) is a cumulative project that has been developed over the last 5 years, with expertise from renowned mining engineers and data scientists.
We are currently offering a free consultation, highlighting areas of potential liability from ground hazards. Integrating the NGRM into your business means you get a complete picture of current liabilities on your existing portfolio and is easily
integrated into day-one decision making in order to avoid future liabilities.
How do you see your product fitting into the mortgage income financing journey?
Currently ground hazard risk reports are being introduced by your solicitor in the final stages of the house buying process. By this stage, the information that transpires can potentially cause a transaction to fall through, our aim is to get this
information available as early as possible, and we are exploring different ways to do that.
In the proptech movement, the initiative is to get all information (title risks, insurance, risks to people, fraud checks, environmental risk and property data etc.), at the front of the transaction, so that a decision can be made way before they
even get to the lenders. In this movement there are a huge number of companies working very quickly, but the industry itself is slow to respond. They hold a unique position in that they can dictate how this process works, if they want to. If they
don't want to lend, then nothing happens. It’s as simple as that. So, we're focusing on providing solutions to the decision in principle and valuation stage of the mortgage lending process.
What would be the impact of this?
Our intention is not to stop the mortgage lending process or to blight property or land. What we've built has to be tailored to the risk appetite of the bank or insurer that’s using it. So even with the highest risk of a property collapsing,
we have created a system that advises what can be done to deal with the problem, and that's the key.
We're trying to keep the market moving because if we don't build solutions, then it will stop. Eventually certain properties (for example ones near the coast) will become unmarketable because there will be a negative public perception. That's the
worst-case scenario - that the public begin to perceive things without understanding what the problem is. Some properties near the coast are perfectly fine. So, it comes back to education and making sure people have as much information as
So it sounds like you offer some advice on remediation?
Yes, the conditions that can be included on a mortgage can vary massively. Like we say, the problem can’t be solved, but it can be managed. For example, if you're on the coastline, depending on what the potential hazards or risks are (for
example flooding, erosion or collapse) a varying degree of conditions could exist. So the lowest condition could be having insurance on the risk and the highest would be that you can't buy or develop there, because there are genuinely parts of
the country and parts of the coast where properties are falling into the sea.
And whilst we're on the subject of insurance, how do you think this might impact the insurance industry?
It's slightly different to apply to insurance companies because they feel confident that they can use their historical claims to determine where they're going to increase their premiums in the future. So if they have a claim on a property this year,
then next year, they will increase their premium on that property. However, that doesn't consider climate change, or the information required to be able to make that decision. It's just basing it on what they know now.
In terms of the actual business, what would you say has been your biggest challenge so far?
The challenge over the last few years has been the barriers to entry. We've spent the last four or five years challenging and getting around them. We’ve positively and successfully disrupted in the legal due diligence space and the next stage
is to build a new market.
Did you have to raise a lot of funding to get all of this done?
We've grown almost completely organically and never gone through any rounds of funding. I still own the business. Because we do something quite unique, I've always felt that we needed to have the passion within. We've grown into a team of almost 20
and they're the driver behind that success. We're staying true to what we’re good at, which is understanding the ground, protecting our customer and trying to integrate with new technology and software to add value.
And what's been your biggest success?
Overcoming barriers. Whilst we don't necessarily have competitors, our biggest challengers are public bodies and government organisations who have previously owned monopolies on the data that we’re now providing.
For example, within legal due diligence until Terrafirma the Coal Authority had full monopoly on a mandatory report that must be sold in coal mining areas; the CON29M report - they were the only organisation that could provide that report. We approached
The Law Society two years ago and pointed out that innovation needed to be stimulated and there needed to be a more competitive environment. We said ‘There will be others, including ourselves, that can do this report much better. It's good
for your members. It's good for law firms.’ Within six months, The Law Society agreed, and we were the first commercial company to ever provide that report. We're disrupting and trying to build new markets and ultimately allow other companies
to come in and compete. We don't want to own innovation, we want to stimulate innovation, because the more companies that come in and do it, the better it will be, even for us.
Looking ahead, how do you think the market will change in the next five years?
There's one side which is really positive, especially from a proptech point of view - an optimistic future where the home buying process is completely different. I think there's no doubt going to be change and there's a lot of investment being pumped
in. I still think the problem is that there are some very large companies that are blockers to change because of the impact it will have on their business model and until they accept the change, then things will move slowly.
I think mortgage lenders and banks will drive change. How fast they adopt new technology and embrace change will drive the pace in the rest of the market. I hope that there are a couple of big lenders who have ambitions to be real positive disruptors. Hopefully
that will resonate down through the rest of the home buying process. I think in five years time three or four large lenders will probably change the way we buy homes, and then the rest of the sector will adapt.