If UK governments keep allowing developers to build new housing estates of 200-2000 units on land that is prone to flooding, what is the risk outlook for insurers? Especially if the Flood Re scheme ends in the 2030s? These are tough questions. Add on some regular winter storm events and the result is likely to be more flooded properties, plus submerged vehicles, business premises and other assets in the path of excess rainfall.
Here are some thoughts from Hometrack;
Hometrack, the UK’s leading provider of property data and insights, has conducted a rigorous analysis using its advanced Climate Change Insights engine, revealing a concerning trend in the UK property market. The analysis, based on the UK’s entire housing stock, indicates that properties in the UK are likely to be overvalued by £20 billion due to the increased risk of flooding. The figures are based on Hometrack’s future flood risk engine, which reflects likely asset losses and the end of the Flood Re scheme in 2039.
Based on today’s flood risk, 400,000 high risk properties will be exposed to a value loss of 7.5%. As climate change intensifies the impact of flood risk, another 150,000 properties are considered to be high risk by 2050.
The 400,000 properties with the highest risk and expected value loss, alongside 500,000 properties with medium risk, are not evenly distributed across the country. East Anglia has a higher proportion of affected properties, with 1% of total property value in East Anglia potentially impacted by flood risk.
Hometrack expects the financial impact of flood risk will be exacerbated by the end of the Flood Re Scheme in 2039. Depending on the levels of insurability available after the end of the scheme, the overall impact could triple to £60bn by 2050.
Hedda Haugland, Climate Change Product Lead at Hometrack, commented: “Storms Elin and Fergus reflect the increased risk that extreme weather poses to UK properties. As the impact of climate change intensifies, such severe flood events are likely to become more frequent. In many areas the ongoing burden of flood protection and insurance will undermine property values, and in the most extreme cases it may impact home owners’ ability to secure insurance and a mortgage.”
The end of the Flood Re Scheme
The end of the Flood Re Scheme in 2039, terminates an agreement between the Government and insurance companies to provide flood insurance coverage to domestic properties deemed at significant risk of flooding. Property values have not yet incorporated the risk posed by the ending of the scheme in 16 years, which is firmly within the average mortgage term of 25 years, leaving thousands of mortgages at risk.
Haugland continued: “It is crucial that insurers and lenders price in the potential impact of flood risk, and ensure that homeowners understand future policy implications such as the end of Flood Re in 2039. Additionally, the government needs to commit to further investment in flood defences and property-specific flood protection grants.”
Regional worries
The insight engine has identified key towns impacted by future flooding risk including Grimsby, Skegness and Salford. In fact, certain streets in Grimsby may experience annual average loss figures which are close to 5% of the property’s value, which has the potential to bankrupt the house owner unless flood mitigation and insurance measures are put in place.
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