How Flood Risk Affects Property Valuations
The Corona virus pandemic notwithstanding, the most serious global threat is climate change. This is driving major changes to the world’s weather patterns which are having significant local effects. In the UK, the most apparent of these is the increasing frequency and severity of flooding. A recent Parliamentary report quotes 2018-2019 figures of 5.2 million homes and businesses in England being at some risk of flooding with well over 500,000 being classified as high risk. More recently, storms Ciara, Dennis and Jorge led to the wettest February on record last year resulting in property flood claims amounting to some £307 million. The average cost of repairing a flood damaged home was £33,600. The numbers of flooded property are likely to increase as severity and frequency of events increases.
Flood risk affects value due to the impact of a flood on the continued use of the premises, the health and safety of the occupants and any consequential damage and disruption. For affected homeowners it is a devastating experience. It is not uncommon for the damage and disruption caused to take 12 months or more to put right and for the property to be uninhabitable during that time.
Unsurprisingly, therefore, flooding and the risk of flooding are matters that the valuer has to be aware of and take into consideration when valuing a property.
Establishing the Risk
Flooding risk varies by type, and the measures to protect against them will vary. Considerations include: the flood risk in the geographical area, frequency or probability of flooding, the historic flooding profile, and the occupation of the property. It is important for the surveyor to identify which type of flooding may affect a property.
There are various types of flood risk resulting from different mechanisms:
Tidal – both sea and river defences may be overtopped or breached by weather systems and high tides.
Fluvial – flooding mainly occurs in floodplains when the capacity of water courses is exceeded as a result of rainfall or snow melts within catchment areas further upstream.
Ground water – low lying areas may flood as ground water levels rise.
Pluvial – surface water flooding is caused by rainwater run-off from urban and rural land with low absorbency. As more land is built on this is becoming an area of increased concern.
Flooding from sewers – occurs where there are combined storm and foul sewers and their capacity is exceeded due to surface water run-off in a short time or blockages occur.
Flooding from man-made infrastructure – man-made structures can fail causing flooding. These can range from reservoirs and canals, through industrial plant to water mains.
Of the above, the most common significant flood events result from surface water flooding and flooding from rivers and sea.
The risk of a particular property being affected by either of the above can be established by checking the Environment Agency website.
As well as indicating the risk as Very Low, Low, Medium or High, shaded maps indicate the at-risk areas. A very low risk is 0.1% or below (1 in 1,000) whilst high risk is greater than 3.3% (1 in 30).
Whilst the indicative risk of future flooding is important, so is the flood history of a property which is why valuers will ask sellers whether the property has flooded in the past and if it has, obtain details.
Pricing and Risk
Home purchasers are not normally heavily influenced by flood risk price factors, and property in high-risk areas may sometimes actually tend to be worth more than a low-risk area. Positive attributes of flood plain location, such as river and coastal views, can offset the negative impacts of flood risk. Negative impacts on value can also be reduced by improving flood defences and the flood resilience of the property.
Flooding Insurance and Value
The cost and availability of insurance and flood mitigation measures are both important factors in valuing property at risk of flooding, and mortgageability.
The problem for an increasing number of homeowners in “at risk” areas, not being able to obtain flood insurance at reasonable cost or without very high excesses (the amount a policy holder has to pay when a claim is made), was recognised by government who encouraged insurers to develop the Flood Re scheme which was introduced in 2016. Insurers pay into a pooled fund (pardon the pun) to meet the cost of flood claims. The flood element of residential insurance policies is then capped according to the property’s council tax band.
There are notable exclusions to the Flood Re scheme. It is not available to BTL residential investment properties which are considered commercial, blocks of 4 or more flats and, most significantly, to any homes built after 1st January 2009. This is important as many new homes are still built on flood plains. Calls for such properties to be covered by additional Building Regulations have yet to be responded to. Excluded properties in high flood risk areas may well not be suitable mortgage securities.
A history of flooding does not necessarily mean that a property will not sell or not be mortgageable. As mentioned, often positive features can outweigh the disadvantages, but the frequency and severity of past events can have a significant bearing. Memories fade, lessening the adverse impact over time and potential for mitigation measures such as flood barriers can also have a positive effect. The most important factor in determining whether a property is a suitable mortgage security, though, is the availability of flood insurance on reasonable terms.
For properties that are acceptable, establishing the value of a property at risk of flooding can be difficult. As with all valuations, it should be achieved by reference to comparable evidence i.e sales of properties at similar risk, wherever possible. It is advisable to act with caution if the agreed sale price of a given property does not fully reflect the flood risk profile of the property. This may be due to special purchaser situations or buyers acting without professional advice.
Hugh Riley FRICS, Senior Regional Chartered Surveyor at SDL Surveying