Issue remains niche for now, but affordability and insurability pressures are becoming more visible in higher-risk areas
Rising flood insurance costs and gaps in cover availability are beginning to create complications in some mortgage transactions, particularly for higher-risk properties and buyers already stretched by affordability pressures.
New modelling from Bank Underground suggests the share of UK mortgagors without insurance could rise from around 5% today to between 7% and 10% by 2050, potentially reaching 16% following a severe flood event. The modelling also suggests uninsured properties may become harder to remortgage if lenders view them as higher risk.
While the analysis is forward-looking, brokers say early signs of pressure are already appearing in parts of the market.
Louis Mason, of Oportfolio, said flood risk is not materially affecting mainstream mortgage volumes, but is becoming more noticeable in areas such as parts of the Thames Valley and for riverside or waterfront homes.
“At the moment, we’re not really seeing flood insurance impacting mainstream mortgage volumes,” he said. “But it is becoming a bit more visible consideration in some areas like parts of the Thames Valley… and for specific property types like riverside or waterfront homes.”
The challenge, Mason said, is usually not whether a client can obtain a mortgage, but whether the associated insurance costs begin to affect affordability and confidence in the purchase.
“The biggest issue is usually around insurance affordability and availability rather than mortgage eligibility itself,” he said, noting that higher premiums, excesses and restricted terms can begin to affect affordability calculations and buyer confidence, particularly for first-time buyers.
Where cover becomes harder to secure, that can also start to slow transactions. Mason said limited insurance options can lead to delays, additional underwriting scrutiny and, in some cases, lead lenders to take a more cautious approach to certain properties.
From the insurance side, brokers are also seeing lenders pay closer attention to whether homes can obtain suitable cover.
Liz Mitchell, of Flood Assist, said some mortgage providers are already taking a more cautious approach to higher-risk properties and increasingly asking for evidence that homes are insurable.
Mitchell said one of the biggest issues is that buyers are not always aware of the level of flood exposure attached to a property, particularly where the risk comes from surface water rather than rivers.
“It’s not necessarily the properties that you see by rivers, it’s the unseen flood risks,” she said.
That can leave some buyers discovering insurance complications late in the transaction process, particularly as insurers become more sophisticated in how they assess flood exposure.
The issue may also become more significant over time. Previous reporting has highlighted concerns around the planned end of Flood Re in 2039, while analysis from Aviva found that one in nine new homes in England are being built in areas of medium or high flood risk.
Many newer homes also fall outside the scope of Flood Re, which excludes properties built after 2009.
For now, brokers say the issue remains concentrated in more exposed areas rather than the mainstream market. But questions remain around how future insurance pressures could affect refinancing and existing homeowners if properties that have historically been insurable begin to fall outside appetite.
“What do they do if they’re then struggling to insure homes that they’ve previously insured really easily?” Mitchell said.
While flood risk is not currently disrupting mortgage activity on a large scale, brokers and insurers say the interaction between insurance affordability and lending is becoming harder to ignore in certain parts of the market.
