"Properties in high-risk areas may see decreased valuations, which can affect the loan-to-value ratio making it harder for buyers to secure favourable mortgage terms"
- Pete Mugleston - Online Mortgage Advisor
Climate change isn’t just changing our weather patterns, it’s shaking up the housing market, especially when it comes to home insurance and mortgage decisions. With the UK facing increasing risks from floods, storms and coastal erosion, homeowners and financial organisations are rethinking their strategies.
Flooding has become a significant concern across the UK with more frequent and severe storms rendering areas once considered safe, at risk. This shift has substantial implications for home insurance. According to the Environment Agency, approximately 5.2 million properties in England are at risk of flooding. This number is expected to grow making it increasingly difficult for homeowners in these areas to find affordable insurance.
For those already living in flood-prone zones, this can result in a significant rise in insurance costs, sometimes making their homes uninsurable through traditional means.
For homeowners in high-risk areas, insurance premiums are skyrocketing. Insurers are setting stricter terms and conditions often requiring homeowners to implement flood defences for coverage. Some insurers are creating exclusion zones where they simply won’t provide coverage at all.
This trend is particularly noticeable in coastal areas experiencing significant erosion and increased storm activity. To address this gap, specialised insurance policies are emerging. These policies, often more expensive, cater specifically to homes in high-risk areas, offering coverage traditional insurers might decline.
Lenders are also becoming more cautious about approving mortgages for properties in high-risk areas. If a home is uninsurable its value drops, making it a risky investment for lenders. As a result, lenders are scrutinising flood risk assessments more closely and may require proof of insurance before approving a mortgage. In some cases, they may refuse to lend altogether.
Properties in high-risk areas may see decreased valuations, which can affect the loan-to-value ratio making it harder for buyers to secure favourable mortgage terms. On the other hand, areas deemed low risk are seeing increased demand driving up property prices. Buyers and lenders alike are prioritising these safer investments, sometimes at the expense of affordability.
As climate change progresses, these trends are likely to intensify. Both insurers and lenders are investing in better predictive models to accurately assess climate risks. Homebuyers and homeowners need to stay informed about these risks incorporate them into their long-term planning and keep up to date with the latest climate risk assessments, understanding how they might affect the area is crucial.
It’s also important that homebuyers and homeowners acknowledge the ease that implementing certain flood defences and other protective measures may offer when trying to obtain insurance and a mortgage. Finally, considering the long-term feasibility of staying in a high-risk area is vital as, in some cases, relocating to a lower-risk area might be the most beneficial financial decision.
