Does Flood Risk Affect a Mortgage? All You Need to Know
If you’re thinking about purchasing a property in an area marked with a flood risk, you might be wondering whether it will affect your mortgage application. In this blog, we’ll discuss the different types of flood risk, how you can mitigate flood risks, and whether or not you will have issues applying for a mortgage on these types of properties.
How To Understand Property Flood Risks
A common question we come across is people asking, “Does flood risk affect a mortgage?”
The short answer is yes, but there is more to the story. Let’s dive into everything you need to know.
When rivers burst their banks and drainage systems reach maximum capacity, untold damage can be done to properties and infrastructure.
According to the Environment Agency, as many as 5.2 million properties across England are considered to be ‘at risk’ of flooding. That’s one in six. 2.8 million of those could flood as a result of surface water alone.
These are alarming statistics, but, fortunately, it’s easy for buyers to determine whether a prospective purchase is in a flood risk area or not. Flood risk surveys and history checks can tell you everything you need to know about the home or business unit you’re looking to buy.
But what if you fall in love with a property in a flood risk area? Or perhaps you’re considering investing in a home or business premises that you’ve since learned is at risk of flooding?
It’s advisable to undertake a flood risk report as soon as possible, because you don’t want your mortgage refused due to flood risk at a late stage of the buying process.
Contact Ashfield Solutions to get a flood risk report.
Now, let’s delve into the different types of flooding and how they can impact mortgages and home insurance.
Types of Flooding
There’s more than one type of flooding, and each type of flood risk will affect your mortgage differently. Let’s take an in-depth look at the different types and how they might impact your mortgage application.
River and Sea Flooding (Fluvial and Tidal)
This is when a river’s channel overflows its banks or when the sea breaches its coastal defences. This type of flooding is typically the most well-mapped and understood. The Environmental Agency has different levels of probability, which will each impact your mortgage as well as insurance costs.
- Flood Zone 1 (Low Probability): Less than a 1-in-1,000 annual chance of flooding. Generally, mortgages are not an issue.
- Flood Zone 2 (Medium Probability): Between a 1-in-100 and 1-in-1,000 annual chance of river flooding, or 1-in-200 to 1-in-1,000 annual chance of sea flooding. Mortgages are still widely available, but the lender may require a specific flood risk report and proof of suitable insurance.
- Flood Zone 3a (High Probability): Greater than a 1-in-100 annual chance of river flooding or 1-in-200 for the sea. This is where difficulties begin. Some lenders will decline applications, while others may ask for a larger deposit, a specialist flood survey, or more expensive insurance.
- Flood Zone 3b (Functional Floodplain): The highest risk zone, with a greater than 1-in-20 annual chance of flooding. This is land that is designed to flood to protect other areas. It is extremely difficult to get a mortgage for a property in this zone, and many lenders will refuse to lend on these properties at all.
Surface Water Flooding (Fluvial)
This is when heavy rainfall overwhelms local drainage systems or the ground’s ability to absorb water, causing flooding in a village or somewhere else.
This type of flooding is harder to predict, and conveyancing experts are now starting to report on these types of flood risks. A high risk rating for surface water can lead to mortgages being declined, even if the property is in flood zone 1. However, lenders and insurers still want to issue mortgages, so the opinion on this is quite circumstantial.
Groundwater Flooding
This happens when the underground water table rises to the surface, often after a prolonged period of heavy rainfall. It is particularly a risk in low-lying areas or where the underlying geology is permeable (e.g., chalk or limestone).
This is also difficult to predict and is often not covered by standard environmental searches. However, specialist flood risk reports may highlight the risk. As with surface water, if this risk is identified as high, a mortgage application could face extra scrutiny or be declined, but this is the least likely of the discussed flood types that mortgage lenders would have an issue with.
How Flood Mitigation Measures Can Lower House Insurance Premiums
Can you get a mortgage on a flood risk property? The answer is yes! However, mortgage lenders will not give you a mortgage on a property that cannot be insured. Buildings must have flood cover, which is usually the main sticking point for getting a mortgage in higher-risk areas.
Luckily, there are various flood risk mitigation measures that homeowners can take to increase the likelihood of getting flood insurance and being able to get a mortgage. Here are a couple of solutions you can take to increase your chances of getting home insurance or lowering your home insurance premium:
- Installing flood defence measures (like flood barriers, raised electrical sockets and flood-resistant floors.
- The “Flood Re” Scheme: This is a government scheme that helps make home insurance more affordable for homeowners in higher-risk flood areas. Options include extra funding to install flood defence measures.
Summary: Will Your Mortgage Be More Expensive?
To sum up, it’s likely some lenders won’t be willing to offer mortgages on flood risk properties, particularly those in higher risk (Zone 3a or 3b) areas. As a result, you may have fewer options available to you. The lenders with the lowest rates might refuse your mortgage application, forcing you to go with a pricier alternative.
If you do secure an affordable mortgage, you can expect your insurance costs to increase. The cost of buildings and contents insurance can rise significantly if your property is at risk of flooding, even if you shop around to find the best deal. There’s no getting away from it: owning a flood risk property is going to cost a little more than an equivalent building with no history of flooding.
That’s why it’s so important to get a flood risk assessment completed on your prospective purchase.
Our FCI Flood Appraisals can give you detailed information about the status of the property, including the likelihood of flooding, potential sources of flooding, and even suggested actions to reduce the risks. To learn more and order your appraisal, please get in touch with a flood risk consultant today.
