Around 1 in 7 mortgage contracts are linked to postcodes with a level of flood risk suggest new research by the Financial Conduct Authority (FCA).
Using flood risk information by the Environment Agency, the FCA found 15.5% of mortgages are in postcodes with some level of flood risk.
The work was undertaken as part of efforts to improve understanding of how climate-related risks may affect financial services and the challenges of climate adaption and resilience.
The financial regulator’s analysis found areas of London at high risk of surface water flooding with 24% of inner west London being affected 21% of the inner east of London affected and 18% of Essex being affected.
The research found the lowest risk was in Cornwall and Devon where 94.1% of the sub region presented no risk from surface water flooding.
Although the exposure to flooding varies by region and type of flooding, the FCA said the findings show that “physical climate risks are relevant to mortgage markets because they affect consumers, firms, and market functioning.”
Commenting on the findings, Richard Pinch, senior director at Broadstone, said: “The scale of flood risk across England’s mortgage market raises serious concerns for homeowners who could see their properties become harder to insure or sell, and lenders facing increasing financial risks across their mortgage portfolios.
“For homeowners, the consequences of flood risk can be severe, from soaring insurance premiums and falling property values to difficulties remortgaging or selling. In the worst cases, households could find themselves trapped in properties that are increasingly difficult to insure or finance.
Flood risk presents a “significant challenge” for lenders said Pinch, threatening property valuations and potentially eroding the value of the security backing their loans.
Lenders could face greater losses in the face of more extreme weather events he added. .
“The challenge will be managing these risks without restricting access to mortgage finance in flood-prone areas. More sophisticated climate risk modelling, stronger flood defences and closer collaboration between lenders and insurers will be critical to protecting both borrowers and the wider mortgage market.”
The analysis comes as the government introduces new Flood Performance Certificates, providing clear, standardised information and resilience, alongside new national platform for flood resilience education and recourse, BeFloodReady.
