The recent bout of bad weather and heavy flooding, particularly in the North East of England has once again raised fears about the ability to obtain home or building insurance on properties that are deemed to be at a higher risk from flooding. According to reports in the Daily Telegraph, it has obtained information from the Environmental Agency, that as many as 480,000 homes may not be able to obtain insurance protection. The knock on effect of this is that, if a property cannot be insured then it is highly unlikely that a mortgage will be able to be raised on the property. Of course the lender, may well wish to provide building insurance under their own scheme ( which most operate) but this looks unlikely as most insurers of buildings on lenders panels operate using the same underwriting requirements as any other insurer. Of course, if the loan to valuation is very small, there is an outside chance that the insurer will allow the purchaser to self insure but again this is unlikely.
The Environment Agency has apparently told The Telegraph that nearly two and a half times more properties are thought to be at risk than estimates provided just seven years ago. By 2035 the number of homes at risk may well have passed the 850,000 mark. These 850,000 homes are ones that it is thought, there is good chance they will flood, once in seventy five years. As per usual, climate change is being blamed for the increase in homes at threat from flooding. The ability to source home insurance (and at a reasonable price) is of a major concern to almost all homeowners. The costs of restoration work following a flood can run in to tens of thousands of pounds and most households, will not have the savings to pay for damages, if insurance cannot be obtained. The issue of homes that cannot be mortgaged has wider implications, if a mortgage cannot be raised then a property can only be sold to cash buyers, who although paying in cash, may not want to purchase a property that adequate insurance protection cannot be purchased on. This may lead to a reduction in resale prices, leading to more problems for an already challenging property market.
For the moment, existing homeowners, should find that their present insurance companies will continue cover for them as under an agreement between the Government and insurers. Anyone who has insurance on one of these’ at risk” properties will continue to be offered cover until 2013. The government have drawn up a statement of principles between itself and the Association of British Insurers.This agreement, is designed to assist towards ensuring that flood insurance remains as affordable and widely available as possible to both home owners and small business owners. In essence, insurers have agreed to continue providing flood insurance, on the proviso that the Environment Agency has announced plans and notified the ABI of it’s intention to reduce the risk for those customers within five years. The good news is, this agreement will apply not just to the existing homeowner, but to any prospective purchaser (of course any new buyer will have to satisfy the existing companies underwriting criteria). It’s also of paramount importance that there is no break in cover, it is a good idea to make a clear diary note as to the renewal date of any contract, as should a policyholder allow a policy to lapse, even for just one day, they may find an insurer reluctant to re insure a property. This also applies to a new purchaser, insurance should be arranged from the date of contract exchange, or on the advise of a solicitor, but certainly, a break in cover, should not be allowed to happen. Whilst this agreement will offer some comfort to homeowners in the short term, it by no means offers a cast iron guarantee that any insurance company will offer a quotation or in deed continue cover.