Flood homes: prices could fall 80%
Fri 18th Jul 08 - 15:13
Insurers may refuse to cover high-risk areas, which could cause property values to plummet
THOUSANDS of people hit by the recent floods could see the value of their homes slump by 80% because their insurers may refuse to cover them for future claims.
Insurers are bracing themselves for payouts totalling £3 billion following the flooding that hit Gloucestershire, Oxfordshire, Warwickshire, Worcestershire and Bedfordshire last week. While analysts say most victims will have their insurance claims paid this time round, they warn that many could face big problems further down the line.
Chris Jordan at Bureau Insurance, a specialist broker, said: “Those who have been hit by the recent floods won’t have problems now; it’s when they come to renew their insurance or sell their houses that they’ll face big problems. Hundreds of thousands of people could be stuck with homes they can’t sell because they are refused insurance.”
This is despite insurers’ agreement with the government to continue to cover existing customers in high-risk areas – where there is deemed to be a 1.3% chance of a flood every year – as long as improvements to flood protection are planned within the next five years.
It emerged last week that there is a big hole in this deal: while insurers must continue to offer buildings and contents cover; they reserve the right to withdraw the flood element in extreme cases where homes are flooded regularly. And even when they continue to cover floods, they could hike the premiums or the excess to such high levels that homes are in effect blacklisted.
More than 250,000 properties are situated in high-risk areas and could therefore be caught by this opt-out in future.
Bill Gloyn of Aon, a consul-tancy, said: “Property owners must be prepared for insurers removing flood cover in response to the heightened risk following last week’s events.”
Insurers are also compiling ever more detailed flood maps, which help them identify properties that are most likely to flood. Norwich Union and More Than, which have the most sophisticated mapping systems, say this enables them to cut premiums for people in lower-risk areas. However, it also means that there are a larger number of properties that they will potentially refuse to insure.
Richard Mason at Money-supermarket, a price comparison site, said: “Many insurers are adopting more sophisticated ways of assessing risk, often pinning it down to an individual property rather than a postcode area. While this is good news for those whose houses are no longer deemed to be problematic, some unfortunate people will subsequently be deemed much higher risk and could end up paying the earth, or worse still, be uninsurable.”
Consumers in high-risk areas already pay an average of 60% more for buildings and contents insurance, according to Money-supermarket. In some instances premiums can be double. More Than, for example, would charge £500 for buildings and contents insurance on a three-bedroomed detached house in Tewkesbury, Gloucestershire, yet the cost for the same house in nearby Stroud would be just £258.
If you experience a flood, you are also likely to see a big increase in the policy excess – the amount of a claim that you must pay yourself. In some cases the excess for flood damage may be as much as £20,000, compared with a standard excess of £100. Insurers could also withdraw flood cover completely if your home is repeatedly hit.
This could be disastrous for the policyholder because it could make the property impossible to sell. Buildings insurance is not optional – lenders will only offer a mortgage if the property can be insured, and they usually demand protection from all perils. If flood cover is exempt, your buyer could find it virtually impossible to get a mortgage.
The Royal Institution of Chartered Surveyors said: “Buyers need buildings insurance before lenders will grant a mortgage, so uninsurable homes could be rendered unsaleable. This will have a knock-on effect on the value of the property, leading to a reduction in value of up to 80%.”
Insurers say it is highly unusual to have flood cover withdrawn completely. More Than said that it had stopped covering floods on only a handful of properties. But the number of blacklisted houses is expected to rise as incidents of severe flooding become more common due to global warming.
Mike Taylor-West at Savills Insurance Services, a broker, said: “Some of those affected by the floods could see their premiums rise by 10% or more and there is a real risk that some insurers will stop covering those whose properties flood year after year.”
Analysts warn that unless the government increases investment in flood defences significantly, things will get much worse. Labour announced last month that it was boosting spending on flood protection from £600m a year to £800m, although this doesn’t take effect until 2010 and experts say it is not enough, given that the bill for the recent flood damage could exceed £3 billion.
There are 2.2m homes at risk of flooding – 270,000 of which are at severe risk – but this could increase to 3.5m by the end of the century unless considerable investment is made.
Many of the areas affected by the recent floods have never suffered before. These include parts of Hull, Toll Bar, South Yorkshire, and Moreton-in-the-Marsh, Gloucestershire.
In addition to the money set aside for improving flood defences, the Department for Environment, Food and Rural Affairs (Defra) has launched a pilot scheme offering grants to individual households so that people can improve their own flood defences. Defra has split £500,000 between six areas – Uckfield in East Sussex, Bleasby in Nottinghamshire, Morecambe in Lancashire, Halton in Leeds and Kirkby-in-Furness and Appleby in Cumbria.
Those managing the project in each area will distribute it between households that the local authority or environment agency believe will benefit most from better protection.
No other grants are currently available for individuals wanting to improve their flood defences, although insurers urge people who live in high-risk areas to take steps towards minimising the damage caused by flooding.
Simon Warsop at Norwich Union said: “Not only do flood resilience measures help cut the damage flooding can cause, but they can also help bring down a person’s premium because it reduces the risk for the insurer.”
WILL WE EVER BE ABLE TO SELL?
SARAH STYLES and her husband, Adam, pictured with their four children Lydia, 17, Annie, 15, Issy, 11, and Tom, 6, fell victim to the recent floods – the second time they have been hit in nine years.Their home in Bretforton, Worcestershire, flooded when a stream that runs through their garden swelled.
The family now face having to redecorate and repair 10 rooms in their house.They have insurance with NFU Mutual and while it will cover most of the cost of the damage, Sarah is worried about the future.
The 41-year-old housewife said: ‘Having been flooded before, I’m really worried about what it will mean for our insurance premiums and excess.
‘I do wonder whether we will be able to get insurance in the future, which might mean we would be unable to sell the house if we ever wanted to move.’
HOW TO PROTECT YOUR PROPERTY
EXPERTS say homeowners in high-risk areas should take steps to protect their properties, which could cut their insurance premiums by 10%. The measures could also ensure that your existing insurer continues to cover you in future.
The Association of British Insurers says it could cost up to £40,000 to protect your home as fully as possible, but it believes this is a price worth paying to keep your excess and your premiums down.
You can call the Floodline on 0845 988 1188 or visit environment-agency.gov.uk to find out if you are in a high-risk area.
Here are some steps you could take:
- Replace wooden floorboards with concrete and lay tiles rather than carpeting the downstairs of your property.
- Install one-way valves into drainage pipes to prevent water and sewage backing up into the house.
- Replace chipboard kitchen and bathroom units with plastic or steel equivalents.
- Move plug sockets higher up the walls so they are above the likely water level.
- Replaster internal walls with a water-resistant material such as lime plaster or cement render.
- Install water-resistant doors and window frames – UPVC or good-quality hardwood.
- Attach flood skirts and barriers to doors, windows and airbricks. These are permanently fixed to the building, but need to be pulled or slid into position when there is a risk of flooding.
- Fit a pump system below the ground floor to pump out water entering the house through the ground. These systems remove water more quickly than it can enter.