Flood - After the Storm

How does the recent flooding impact both the affected areas and the wider community

This summer has served up weather fit only for ducks and over and above the physical problems and hardships the flooding has caused for affected home owners, is there a longer term issue that needs to be considered if the home owners affected want to move home? For those affected, the impacts will continue if they want to move at any time in future months and years.

Clearly, those affected know that an immediate property sale is out of the question and that there are other things to sort out and deal with first. Upping sticks and moving on in the future is now a different kettle of fish. What impact will the flooding have had on the value of your property? What are the wider implications for the market generally?

No hard and fast rules

Reports in the national press have claimed that as much as 80 per cent may be wiped off property values in the flooded areas, although the evidence that exists would seem to rebuff this suggestion.

It may well be the case that someone wanting to sell would have to accept this kind of devaluation if they wanted to sell immediately, but for those who can wait a little longer things should not be so bad.

Indeed given the findings of ‘The Impact of Flooding on Residential Property Values’ report that was carried out by Liverpool John Moores University and the University of Wolverhampton for the Royal Institution of Chartered Surveyors (RICS) in September 2004, it appears the worst that home owners can expect to see is up to 40 per cent knocked off the value of their property which is still a significant amount of money.

Anyone affected will not like to read these figures, but they can perhaps take heart from the fact that the mean devaluation uncovered for properties that had been flooded was actually 12 per cent.

The problem for many home owners in assessing how badly they have been affected personally by devaluation through flooding is that there are no hard and fast rules. There is no formula upon which a valuation rests and similarly so when it comes to knocking down the price in light of recent flooding, individual circumstances play a huge part in defining the outcome. What is the demand for property in a given locallity? How badly was the property affected? Did it flood previously and what is the likelihood of it happening again?

The recent flooding in areas such as the Boscastle flood, Gloucestershire and Oxfordshire were worse than the deluge seen in 1947 and so there is an argument to say that properties at the extremity are going through an event, which may only happen on a 60-year cycle. If this proves to be the case then the value of these properties should recover relatively quickly as people begin to put the potential risk in perspective and see it as a freak event, rather than one they should prepare for on a regular basis.

However it takes time for such perspective to develop and for valuations to recover quickly it is also necessary that tangible improvements are made to local flood defences.

As stated in ‘The Impact of Flooding on Residential Property Values’ report: “Previously flooded properties experience a progressive, though highly variable, recovery of value over several years provided there is no recurrence and the likelihood of recurrence is seen to be reduced by improvements to neighbourhood or specific property flood defences.”

The report also highlights the attitude of insurers as a major factor in the future value and saleability of a flood-affected property, as without such cover it is generally impossible to secure a mortgage.

Home owners can take some solace from the fact that the government and the insurance industry have come to a deal whereby competitive cover will be given to those affected in all but the most extreme cases.

As the Association of British Insurers explains: “If the probability of flooding is less than 1in 75, insurers have undertaken to provide cover through the competitive market.”

However it also accepts there are some who will be left out in the cold. “Unfortunately around half a million homes are not so lucky. And although flood defence schemes have been planned to help in some of these areas, the funding put aside by the government for flood management does not stretch to putting them all in place quickly.”

For property owners in this category it is going to be a more difficult wait as they see what the weather serves up in the years to come and how potential buyers view the associated risk in buying a property that the insurance industry will only cover at a premium.

There is also the worry that for those who have been worst affected and pose the biggest risk of future flooding that insurers will withdraw flood cover altogether. Cover may be in place for buildings and contents making it possible to take out a mortgage, but the fact that cover in the event of flooding has been pulled would undoubtedly make it almost impossible for owners to sell on their home if they so wished.

Statistical information

Part of the problem remains the lack of hard and fast statistical information on the effect, regularity and cost of potential flooding and until better information is available it will remain difficult for home owners in hazardous areas to get the kind of cover at the cost they can afford.

As the RICS report states: “The study highlights the need for more accurate and finely tuned information to be publicly available to aid in the realistic assessment of flood risk to a particular property.

“The consequent reduction in uncertainty would permit insurance cover to be negotiated, albeit subject to premiums and exclusions to the most at-risk properties, and would focus the property owner’s attention on the necessity of flood contingency planning and flood defence measures, both at the neighbourhood level and to the property itself.”

Given that the long-term view is that prices in flood affected areas will recover, it is unlikely that the recent UK deluge will have an impact on the wider property market as a whole.

 

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