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UK property owners facing flood insurance problems

The government’s statement of principles on insuring properties at risk of flooding will end on 30 June 2013 and one in four UK properties is at risk of flooding, meaning up to £214 billion n of property could be uninsured, according to research by property search firm SearchFlow.

It says that property owners could find themselves unable to insure their properties from the summer of 2012 as insurers become unwilling to offer policies which expire after the principles agreement.

It is warning that 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.

‘The end of the principles agreement between the Association of British Insurers 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,’ said Richard Hinton, business development director at SearchFlow.

‘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,’ he explained.

‘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,’ he added.

The ABI estimates that the floods of 2007 cost more than £3 billion 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.

‘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,’ said Hinton.

‘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,’ he explained.

‘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,’ he added.