In 2021, the Bank of England (BoE) published a report on financial risks posed by climate change for the largest UK banks and insurers. It warned that households could find it difficult to borrow if flooding becomes more frequent and damages property.
The report said: “Households and corporates that insurers become unwilling to insure, or where insurance premiums become unaffordable, may face difficulty in accessing finance from banks.
“UK households in regions most exposed to physical risk would face challenges remortgaging their properties in this scenario because they would fall in value due to severe flooding and/or become uninsurable.”
Lenders require anyone buying a home in a flood-risk area to have building insurance, including a flood protection policy.
But Insurers have paid out over £1.5bn over the last four years as extreme flooding becomes more frequent, driving up premiums and policy availability for homeowners.
According to the ABI, insurers paid out £543m following Storms Ciara, Dennis, and Jorge in February 2020, and £497m was paid after Storms Dudley, Eunice, and Franklin struck in February 2022.
Insurers are expected to pay out an estimated £560m to help customers who suffered damage caused by recent Storms Babet, Ciaran, and Debi that hit in October and November last year.
Mr Stewart said: “The insurance market changes. If they get millions of pounds of claims in a flood plain they will withdraw as it is too risky – people need to be aware of the risks.
“Properties on riverbanks are nice but they come with a risk, and there will be more properties that will become unmortgageable and unsellable in the future [because of climate change].”
To ensure that homes can be repaired and sellable after a flood event, in 2016 the Government and insurers set up Flood Re. The scheme provides flood insurance coverage to domestic properties in the UK deemed at significant risk of flooding.
However, homes built since 2009 are excluded from the scheme, which could put thousands of homeowners living near rivers and estuaries at risk of not being able to sell their homes.
It also ends in 2039 – which could lead to a “sharp fall” in household flood insurance cover, according to the 2021 BoE report.
Nick Mendes, of mortgage advisors John Charcoal, said: “High-street lenders will decide whether they will offer mortgages in these [flood-risk] areas on a case-by-case basis.
“The key thing is when you are buying a property by a river, or similar, you are potentially narrowing down the pool of people that are happy to take on that risk when it comes to selling.
“If lenders are saying no to lending on properties in flood plains now, then buyers and sellers need to be aware that they will have similar issues in the future.”
