This could mean property owners are unable to insure their properties from summer 2012 as insurers become unwilling to offer policies which expire after the principles agreement.
Uninsured properties could leave owners in breach of their mortgage contract, as well as making properties harder to sell or remortgage and reducing their overall value. According to Know Your Flood Risk UK, many UK insurers are already trying to rid themselves of properties at significant risk of flooding and some property owners have been unable to secure policies with excesses below £20,000 .
Richard Hinton, business development director at SearchFlow said: “The end of the principles agreement between the ABI and the government could make flooding a hugely contentious issue during the conveyancing process when professional conveyancers have to consider the potential risks a property faces. Although buyers will be able to obtain flood insurance for the next few months, the long-term prospects of properties at risk of flooding are potentially bleak.
“Especially for buyers purchasing in high risk flood areas, the possibility of very high premiums, significant reductions in value, less access to mortgage finance – even action taken by the mortgage lender due to breach of the mortgage agreement – is high. Conveyancers looking after their clients’ best interests must ensure they are aware of the risk of flooding and ensure their clients appreciate the danger posed by the end of the ABI agreement”.
Widespread flooding is a significant liability for those purchasing property – the Association of British Insurers estimates the floods of 2007 cost more than £3bn and that the average bill for the repair of a flooded property is over £30,000. The Environment Agency currently spends £300 million per year on flood defences, but nonetheless reports that 43% of defences are in fair, poor or very poor condition.
Richard Hinton continues: “The government’s current spending on flood mitigation may seem substantial, but the truth is that much more is needed to address the seriousness of flood risk. Only a tenth of the total cost of the floods of 2007 is spent on flood defences each year. The potential costs of flood damage dwarf the annual spend on defences and this is the main reason why insurers are currently reluctant to expose themselves to flood risk.
“One of the main principles in the ABI’s agreement was that the government improve flood defences in high-risk areas. The fact this has not been done means an extension to the agreement is unlikely. This is worrying news for those buying in areas with high flood risk. Given that one in four properties in the UK faces a significant risk of flooding, conveyancers everywhere must take notice of the potentially huge dangers a future dearth of flooding insurance may pose”.
In response David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains said:
“For those living in susceptible areas, flooding is quite rightly a major concern. Floods are unpredictable and can cause hugely costly damage that is frequently too expensive for home owners to repair out of their own pockets. Following the floods of summer 2007, the Association of British Insurers estimates it paid out over £3bn to rectify the damage done. Without insurance, that kind of loss is would simply be too high for most communities affected by floods and could force homeowners to take a loss on the value of their homes by selling damaged properties at a knock-down price.
“We recommend property purchasers ensure their conveyancer completes a comprehensive search to assess the risk of flooding. Buyers in areas where the risks of flooding are high must factor into the cost of the property the fact they are likely to face higher insurance premiums as a result of their location. While the size of the flooding discount varies across the country – often depending on buyers’ awareness of flooding as a potential problem – properties with a high risk of flooding generally sell for between 5% – 15% less than comparable properties without high flood risk”.
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