Housbuilder Top Tip: Severe Flood Warning - February 2014
Published 28 February 2014
With unprecedented levels of rainfall causing widespread flooding across the country, it is inevitable that plot purchasers, mortgagees and insurers will be more alert to the flood risks of new developments.
The Council of Mortgage Lenders requires borrowers to take out standard buildings insurance which includes flood risk cover. It is difficult, if not impossible, for plot purchasers to obtain flood risk cover on properties assessed as being at high risk of flooding. Where insurance is available it is likely to be expensive with higher excesses.
In June 2013 the Association of British Insurers and the Government agreed to devise a reinsurance scheme for insurers, known as Flood Re, to ensure that flood risk insurance remains affordable and available to home owners at high flood risk. Flood Re, which is expected to come into force in the summer of 2015, will cap flood risk insurance premiums based on council tax bands. It has been indicated that the cap will start at no more than £210 per annum in Bands A and B, rising to £540 per annum in Band G, which should bring down the cost of cover for high risk homes. It is, however, proposed that Flood Re will not apply to homes built after 1 January 2009, apparently as a disincentive for developers to build in high flood risk areas. It will also exclude leasehold properties and affordable housing requiring insurance to be bought on a block basis, since such building insurance is considered to be commercial rather than domestic, and homes in the highest council tax bands.
It is, therefore, important to consider the flood risk of potential development sites at an early stage. A flood risk search should be carried out as part of the site acquisition due diligence, which will give an indication of the overall risk of flooding and confirm whether the development is likely to be insurable at standard terms.