D-Day dawns for thousands of households at risk of flood

Lenders have been officially warned that an increasing number of properties are to become uninsurable and unmortgageable, creating mortgage prisoners marooned in their own homes.

The warning has come from the Council of Mortgage Lenders in a briefing about flood insurance.

It is so concerned that it has written to environment minister Richard Benyon, and is advising lenders to analyse their existing stock of loans and how mortgages on their books might be affected by the cost, or impossibility, of flood insurance.

From June 2013, some home owners will find their properties uninsurable. This is because the ‘statement of principles’ – an agreement between the Government and the Association of British Insurers – will end.

The ABI will no longer guarantee to provide cover for properties in areas when no improvements in flood defences are planned.

With most households taking out insurance policies annually, the effects will be felt from as early as next month.

The ABI has also warned that up to 200,000 home owners may begin to find it difficult to get affordable flood cover.

But, says the CML, even if it is possible to obtain insurance, the prospect of “significantly higher insurance premiums may affect the ability of the borrower to continue to meet future mortgage commitments, and the lender’s assessment of the affordability of the loan. Uncertainty about the extent to which premiums may rise may make affordability difficult to assess.”

Of the households that find their properties are uninsurable, the CML says that borrowers with mortgages on such properties could find they are unable to move or to remortgage.

The CML warns: “An increase in the number of homes that cannot be insured may add to the problems of a property market in which there is already a reduced number of transactions, creating further barriers to mobility.

“The inability to sell or remortgage a property because it cannot be insured may also create mortgage prisoners – customers who have an existing loan but whose circumstances make it difficult to remortgage, even if their terms could be bettered elsewhere.”

*Separately, the RICS has called on the Government to set up a flood insurance fund to help less well-off home owners whose homes are at risk not just of flooding but of being unmortgageable.

Associate director Alan Cripps said: “RICS would like the Government to consider providing a flood insurance fund, similar to those seen in Germany and the United States, to assist the most vulnerable and make sure they are not placed at unnecessary and unaffordable risk.”