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Escalating flood risks mean UK properties are on track to be overvalued by £20 billion

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  • Properties in the UK could be overvalued by an estimated £20 billion when it comes to flood risk.
  • This figure is driven by 400,000 properties across the UK which have high flood risk, but have not yet been impacted by a flood event.
  • East Anglia is the most affected region, while Grimsby, Skegness, and Salford are the towns most significantly impacted by these changes.
  • We aim to raise awareness among homeowners around the risk of flooding, and also help lenders transition to a world prone to extreme weather

Our rigorous analysis using our advanced Climate Change Insights engine reveals a concerning trend in the UK property market.

The analysis, based on the UK’s entire housing stock of residential properties* indicates that properties in the UK are likely to be overvalued by £20 billion due to the risk of flooding.

This conclusion is reached through combining our automated valuation model with current and future flood risk data. The analysis considers both the expected value loss from increased flood risk and the anticipated decrease in property value due to decreased insurability following the end of Flood Re.

Based on today’s flood risk, 400,000 high risk properties will be exposed to a value loss of 7.5%. As climate change intensifies the impact of flood risk, another 150,000 properties are considered to be high risk by 2050.

The 400,000 properties with the highest risk and expected value loss, alongside 500,000 properties with medium risk, are not evenly distributed across the country. East Anglia has a higher proportion of affected properties, with 1% of total property value in East Anglia potentially impacted by flood risk.

We expect the financial impact of flood risk to be exacerbated by the end of the Flood Re Scheme in 2039. Depending on the levels of insurability available after the end of the scheme, the overall impact could triple to £60bn by 2050.

The end of the Flood Re Scheme

The end of the Flood Re Scheme in 2039, terminates an agreement between the Government and insurance companies to provide flood insurance coverage to domestic properties deemed at significant risk of flooding.

Property values have not yet incorporated the risk posed by the ending of the scheme in 16 years, which is firmly within the average mortgage term of 25 years, leaving thousands of mortgages at risk.

Hedda Haugland, Climate Change Product Lead at Hometrack, commented: “Storm Elin and Storm Fergus have stressed the significant threat of flooding to UK properties.

“As the impact of climate change intensifies, such severe flood events will become more frequent. In certain flood-prone areas the ongoing cost of remediating the impact of flooding may represent a significant proportion of the total property value, potentially making it difficult to secure insurance and a mortgage.

“It is crucial that insurers and lenders price in the potential impact of flood risk, and ensure that homeowners understand future policy implications such as the end of Flood Re in 2039. Additionally, the government needs to commit to further investment in flood defences and property-specific flood protection grants.”

Regional worries

The insight engine has also identified a number of towns which are most impacted by future flooding risk changes in Flood Re, with Grimsby, Skegness and Salford revealed as the top three.

In fact, certain streets in Grimsby may experience annual average loss figures which are close to 5% of the property’s value.

This has the potential to bankrupt the house owner unless flood mitigation and insurance measures are put in place.

Haugland continued: “Hometrack’s new climate change insights engine offers a real solution for lenders, providing the information they need for faster decision-making, debt provisioning and capital calculations. The correct pricing of assets is crucial for lenders, and also benefits consumers and homeowners, providing them with accuracy and piece of mind.“

“Hometrack’s solution offers property-level insight which allows lenders to holistically analyse the risk profile of the property alongside LTV measures and affordability criteria, as well as other property risks. By incorporating these risks in risk management practices early, lenders can smoothly transition to a world prone to extreme weather.”

Find out more about our climate risk solutions for lenders.

19 December 2023
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