Flood risk – the impact on lenders

Montreal Finance Gazette: Home owners vulnerable to flood risk may be unable get insurance, sell or remortgage their property after June 2013. James Sherwood-Rogers, chair of the Know Your Flood Risk campaign, discusses what both homeowners and mortgage lenders need to be aware of in the run-up to this insurance deadline.

Unpredictable weather patterns are among the many factors as to why we are seeing an increase in the levels of flood risk across the UK. The events at Boscastle in 2004, Carlisle in 2005, Hull in 2007 and Cockermouth in 2009 offer four very stark and memorable reminders of the dangers that flood water can bring to residential communities. And while these are particularly extreme cases, there is no doubt that flooding of any scale is an increasing threat with one in four homes considered to be ‘at risk’ of flooding.

Flooding has dominated the news agenda over recent years with individual’s personal stories, remarkable rescues and the subsequent high costs to both consumers and industry of repairing the resulting damage. If we look at the 2007 floods for example, the Environment Agency (EA) reported that the average cost to affected households was between £23,000 and £30,000 per flooded home, which doesn’t take into account future ‘saleability’ and any impact this may have on a property’s value.

The Association of British Insurers (ABI) released its Quarterly Consumer Survey 2011 in June, in which it reported that the average value of insurance claims for a flood in 2010 was over £12,000 per claim, far outweighing claim values for other threats including fire, subsidence, theft, storms and burst pipes, much to the respondents’ surprise where 51 per cent wrongly believed that fire would instead prove to be the most expensive claim...

Birch trees stand in flooded fields by the River Spey. In the distance are the north-eastern outliers of the Cairngorm Mountains. Photo by Anne Burgess, Wikimedia Commons via Geograph UK, under the Creative Commons Attribution-Share Alike 2.0 Generic license