New flood risk could devalue UK properties by more than 20 billion

UK homes may face an overvaluation exceeding 20 billion concerning flood risk if current conditions persist, indicating potential asset losses. The conclusion of the Flood Re scheme in 2039 is another major concern for homeowners. A BBC News report suggests that subject to post-scheme insurability levels, the overall impact could surge three times to around 60 billion by 2050. The conclusion of the Flood Re Scheme in 2039 will nullify the agreement between the Government and insurers. This can hurt affordable flood insurance for high-risk households.

The report also highlights that property values have yet to factor in the scheme's conclusion within the average 25-year mortgage term. This poses a risk to thousands of mortgages. Currently, 400,000 high-risk properties face a 7.5 percent value loss because of flood risk. If climate change escalates, an additional 150,000 properties could be at high risk by 2050. The 400,000 and the 500,000 medium-risk properties are mostly placed in East Anglia, disproportionately impacting property values. https://ringley.co.uk/blogs/net-zero-property-management-how-ringley-is-making-a-difference

The End of the Flood Re Scheme

When the Flood Re Scheme ends in 2039, it will mark the end of an accord between the Government and insurers, providing flood insurance for properties at substantial risk. Property values have yet to factor in this risk within the average 25-year mortgage term, endangering many mortgages. Experts are urging insurers, lenders, and the government to consider and address potential impacts on homeowners, considering the ending of the Flood Re Scheme.

Regional Concerns

A survey by assets.publishing.service.gov.uk has identified Grimsby, Skegness, and Salford as the town’s most likely to be affected by the upcoming flooding risk changes in Flood Re. Particularly alarming is the potential annual average loss of nearly 5 percent of property value in certain Grimsby streets, posing a risk of financial distress for homeowners without adequate flood mitigation and insurance measures.

The situation can have a profound impact on lenders. One practical way to address the problem is to equip lenders with essential information for swift decision-making, precise debt provisioning, and capital calculations. Crucially, this ensures the correct pricing of assets, benefiting not only lenders but also consumers and homeowners by providing them peace of mind about their future.

Property-level insights are available for lenders to analyse the risk profile, Loan-to-Value (LTV) measures, affordability criteria, and other property risks. These factors can be incorporated into risk management practices, allowing lenders to navigate a world increasingly susceptible to extreme weather conditions. There is an imminent risk to property values that remains largely unaccounted for, especially when the scheme's termination coincides with the 16-year mark, well within the standard 25-year mortgage term. It is apparent that this is an oversight, but it places thousands of mortgages in a precarious position. The government must urgently consider making suitable investments in flood defences and property-specific flood protection. At the same time, insurers and lenders must incorporate potential flood risk impacts into pricing, ensuring homeowners comprehend future policy implications, notably the end of Flood Re in 2039?