The “unprecedented” winter weather of 2013/14 is clearly telling us that the rules on the climate have changed. New records are being made and perhaps have still a way to go:
– The wettest January in England since 1755
– The wettest sequence of months nationally since records began.
– 6000 homes affected by flooding so far and still rising
– Likely final bill on insurance claims in the region of £1Billion.
Damage claims have not reached the levels of the 2007 floods yet, thanks to a significant investment in flood defences, but this has not kept pace with inflation. While some of the recommendations of the Pitt Report have been heeded and there is more advice and information on warnings, there remains a gaping hole with insurance arrangements and alerting the home buying public ahead of purchase on the hazards from flood risk.
We have to reinterpret the geography around us and how the climate is impacting on property risk for conveyancers and their clients. Conveyancers need to treat flooding as a standard risk as they would local searches. The unprecedented flood event is becoming normal anywhere in the country.
While flood searches have been gradually adopted by some conveyancers, they still typically average just 30% across the industry as a standalone search, rising to perhaps 40-45% when taken with a GroundSure’s Homebuyers report which includes a flood risk assessment. You would be surprised that some of the most flood prone areas continue to see a poor take up of flood search enquiries.
It is clear that the insurability of the property is becoming a key factor in likely purchase completion, not least from the homebuyer’s perspective, but also that of the lender.
Lenders are taking an ever closer view on properties in high flood risk areas. Where insurance is proving difficult or expensive to obtain, lenders are understandably concerned about the security of the loan. Aside from the perceived blight, flood repairs, insurance excesses and even structural damage from flood water will take its toll on the value of the property and the ability to sell in the future.
While there are questions of social justice and vulnerability to consider, it is possible that lenders may take a stronger stand in years to come should this weather become the norm. We may well see further revisions of the CML Handbook in this regard.
So what about the insurance position and how should conveyancers deal with this on behalf of their clients?
Insurers have either increased premiums based on claims history or risk, or have imposed substantial excesses when flood incidents have occurred. The existing statement of Principles was meant to moderate this, but problems exist. The new replacement Flood Re scheme, due to come in by mid 2015, will build a central fund to pay out against high risk properties, which will be funded by a universal rise in premiums.
However, there are many exclusions from the scheme, including: properties built after 2009, any that are in council tax band H, leasehold, commercial and housing association properties, as well as the private rented sector/buy to let market. This could total in excess of 5 million properties.
Even if insurance can be provided — is this really any substitute for the heartache and poor quality of life from regular clean up, repair and replacement of household goods? Insurance is not the peace of mind silver bullet when you still have a choice before completion.
The Law Society has strengthened its guidance on flood risk, recommending that conveyancers make full enquiries of both the insurance position and its impact on mortgage availability. They advise that sellers advice and Environment Agency free data is insufficient reliance and further information, such as that provided by flood searches, will reveal more detail on local conditions and insurability risk. In response, the Search Code has strengthened data requirements to reflect all types of flooding and their impact on property, including groundwater.
It is essential therefore that conveyancers undertake the fullest flood due diligence ahead of exchange, regardless of the type of property and its situation. Otherwise, they risk their practice reputation; fall foul of code of conduct guidelines on client care and undertaking searches relevant to the property.
This is the new norm on flooding and we must all accept a greater responsibility to guide clients through better, more comprehensive guidance.
GroundSure provides the clarity ahead of exchange, as part of the searches the conveyancer should make for their client. A comprehensive flood risk assessment is available in the GroundSure Homebuyers Report, with additional detail available in the GroundSure Flood report. For more information call 08444 159 000 or email [email protected]