The Council of Mortgage Lenders (CML) has welcomed government measures seeking to ensure that people in areas at risk of flooding are able to afford adequate insurance cover for their homes.
Lenders have also welcomed the commitment by water and environmental management minister, Dan Rogerson, to continue to monitor the cost of insurance.
In the CML’s response earlier this month to the Department for Environment, Food and Rural Affairs on regulations for the flood re-insurance (Flood Re) scheme, it said it supported the broad policy intention of ensuring that insurance continues to be readily available – and affordable – in areas at risk of flooding.
During the passage of the Water Act, the CML had raised concerns about the impact on both home-owners and lenders of the scheme’s exclusion of leasehold properties as well as private rented ones that are insured commercially. The lenders now welcome the government’s recognition that people occupying affected properties could still find it difficult to obtain and afford buildings insurance after Flood Re is introduced.
The CML says it also welcomes the minister’s decision to monitor and review this, and to commission a study of how households are affected. It added that it looks forward to seeing the results of that study, and to continuing to work with the government to ensure that households are not at a disadvantage because they are insured commercially.
The Flood Re scheme is being put in place by the government and insurers to help smooth a gradual, long-term transition towards pricing that reflects risk from flooding. The government has acknowledged that this could take up to 25 years, but lenders are concerned that even that is not long enough – because of the increasing number of mortgages being written for terms of up to 35 years or longer.
The CML’s response argues that lenders will want to understand how the transition is to be managed and delivered – and what will happen if targets are not being met.
Lenders also want to see Flood Re working effectively to ensure premiums are affordable for customers, and that this is not achieved by imposing unreasonable excesses as an alternative. Excesses are a key part of the calculation for customers, and large excesses can make lenders reluctant to offer mortgages at higher loan-to-value ratios, or affect how much they are prepared to advance, the CML said.
The CML welcomes what has been achieved so far but will continue to monitor how the scheme progresses. It is ready to work with the government and insurers to ensure that Flood Re delivers a satisfactory outcome for lenders and borrowers – and avoids causing unnecessary disruption to housing and mortgage markets.
