For any adviser looking at a client’s residential mortgage or remortgage application, a host of information concerning the applicant and their financial situation is required upfront. However, aside from the valuation of the property they are planning to purchase, little information is required upfront on either the condition of the property or any additional local factors that could potentially affect the completion of the transaction.
One forthcoming change in the property insurance sector is, however, going to become key.
Dependent on what plans the government announces within the next few months, it could potentially create an issue for individuals who are looking to obtain mortgage funds for properties that are classed to be at significant risk of flooding – of which there are approximately 200,000 homes.
On 30 June 2013, the Statement of Principles will expire. This agreement currently commits insurers to continue to provide flood insurance under certain circumstances.
However, with its forthcoming expiry and government yet to announce or implement a solution on what will happen post June 2013, it leaves a great deal of uncertainty for ‘at risk homes’ as to whether owners will be able to continue to source affordable insurance on the property, if at all.
On reading this, you may wonder why we are flagging this issue to you now as June 2013 is still a year and a half away.
However, the expiry of the agreement could create an issue for anyone commencing their annual insurance policy from July 2012 onwards, as it will subsequently overlap the expiry of the agreement.
With this date being only seven months away, we believe it is important to raise the issue now to ensure everyone is fully aware of the true deadline.
The other consideration is that flooding is unfortunately not going to go away. If anything it is going to become a greater concern as unseasonal weather conditions continue to bring heavy bursts of damaging rainfall that create pluvial flooding, combined with the fact that many new build developments continue to be built on what could be seen as higher risk areas of land.
In fact, today one in four British homes are considered to be at risk of flood.
To review this issue, we recently hosted a high-level industry round table session at Westminster with key industry stakeholders to discuss this forthcoming deadline and what it means to the industry as a whole. Around the table were representatives from the CML, ABI, RICS and the Law Society, in addition to expert environmental and surveying specialists.
The round table pooled together the views and experiences of highly experienced and senior members of the property and environment industries.
While it is down to government to announce a solution as to what will happen post June 2013, all participants agreed it is also important that the wider industry plays its part in raising flood awareness to both homeowners and future purchasers. This includes insurers, brokers and lenders, through to surveyors and solicitors.
Consumers need to be educated regarding the issue and ensure they are aware of ways in which to understand their own personal levels of risk, their insurance requirements and to research the measures they can take to protect their future exposure to flood.
We also discussed potential updates to the existing mortgage application, valuation or conveyancing processes that could potentially take place to incorporate flood risk data as a standard, so everyone in the process is fully aware of their risk profile and budget, and plan accordingly.
From a broker’s perspective, until we receive a solution from government, it may be prudent to mention flood insurance to clients upfront to ensure they are aware of the property’s situation and undertake some research regarding the potential cost of insurance annual premiums and excesses.
For those of you operating in areas that have been affected by flood in the past, such as Hull, Gloucestershire or Cumbria for example, it is likely that homeowners will have to speak to specialist insurance brokers to identify a policy that best suits the property in question and fits the insurance criteria of the lender that will be financing the mortgage.
Much is hanging in the balance until government announces what solution will come into effect.
Until then it is difficult to determine how flood risk could affect the availability of insurance products to homebuyers and owners – and in turn mortgages.
After all, if insurance proves difficult to come by for the most significantly at risk homes, the ability to secure a mortgage without valid insurances could be a real issue. As we know, it is a standard condition for all mortgages that the property is protected by buildings insurance, including flood cover.
We therefore actively encourage government to release its plans sooner rather than later to ensure we all know where we stand on this issue.
Ultimately, anyone looking to purchase a new property looks to their trusted adviser for advice throughout the entire process and so it is important to be aware of these forthcoming deadlines and the impact they may have moving forward.
After all, forearmed is forewarned.
James Sherwood-Rogers is chair of the Know Your Flood Risk campaign. For more information go to www.knowyourfloodrisk.co.uk
