Flood risk is beginning to create friction between the insurance and mortgage markets, as pressure on affordability and insurability starts to surface in higher-risk parts of the UK.
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 and does not point to a systemic threat to banks, some brokers and insurers say elements of that pressure are already beginning to appear in specific areas and property types.
Louis Mason, of Oportfolio, said flood risk is not materially affecting mainstream mortgage volumes, but is becoming more visible in locations 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, particularly around Berkshire and Surrey, and for specific property types like riverside or waterfront homes.”
The issue, Mason said, is less about outright mortgage eligibility and more about the cost and availability of insurance.
“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.
Where cover becomes harder to secure, that friction can begin to affect the transaction itself. 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, there are also signs that lenders are paying closer attention to insurability.
Liz Mitchell, of Flood Assist, said some mortgage providers are already taking a more cautious approach to higher-risk homes and increasingly asking borrowers to demonstrate that properties can obtain suitable cover.
A key challenge, Mitchell added, is that exposure is not always obvious to buyers.
“It’s not necessarily the properties that you see by rivers, it’s the unseen flood risks,” she said, pointing to surface water flooding as a growing concern.
That issue sits against a backdrop of increasing exposure and mounting pressure on the affordability and availability of flood cover. Previous reporting has highlighted concerns around the pace of adaptation ahead of 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 properties also fall outside the scope of Flood Re, which excludes homes built after 2009 and was designed to maintain affordable cover for higher-risk households.
Mitchell said insurers are continuing to invest in increasingly sophisticated flood modelling, particularly around surface water exposure, which could lead to tighter risk selection over time.
“I can’t see their appetite increasing,” she said, noting the volatility flood losses can create for underwriting performance.
For now, the effects remain contained and largely concentrated in more exposed parts of the market. But the longer-term question may centre less on new purchases and more on 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.
What begins as an insurance issue can quickly become a lending issue once affordability, refinancing and property values come under pressure. The challenge for both markets may not be a sudden withdrawal of capacity, but a gradual tightening in how flood risk is priced, assessed and financed over time.
