17-03-2008
Pitfalls of investing in a flood-risk property
by Gee Sahota
There appears to be little doubt that global warming has played a significant role in changing the face of our weather. But while some buy-to-let investors’ rental properties will not be affected by the weather, for others it is a serious concern, especially when their property is located in a flood risk area.
It is estimated that at least 5 million people in the UK live in flood risk areas, having to deal with the unexpected and often devastating problems a flood can bring to their property and lives. Vulnerable regions include the West and South West of UK, which have suffered considerably in recent years. From Abergavenny in South Wales to Tonbridge in Kent, many homes were flooded from last summer’s mammoth rainfall, whilst hundreds more were at risk.
According to the Environment Agency, at present 2.3 million homes and 185,000 businesses are at risk of flooding in England and Wales representing property, land and assets to the value of £200bn. This means that around 10% of houses in England are at risk of flooding. The devastating floods of 2000 caused damage to 10,000 properties and the total cost to insurers was nearly £1bn.
With storms and resulting floods a growing problem in the UK, it makes commercial sense for a landlord not to purchase a property in a high risk area. However, if the pros outweigh the cons as far as an investment is concerned, it is then highly important that your landlord insurance covers you in the eventuality of excessive water damage to your property. Often this cover is difficult to find and the premiums can be expensive.
There are varying levels of flood risk and so you should check whether your property is located in a medium to low risk area. If it is, then finding insurance shouldn’t be as much of a problem. However, homes situated in a flood plain area can represent a major or even unacceptable risk for the insurance companies to take on and so finding flood plain landlord insurance can be an uphill struggle.
However, it's not all bad news. In reality few homeowners in high risk areas are ever left without insurance altogether, although they usually have to negotiate special terms with insurance companies to access cover. Insurance companies these days are more aware of the problem and have more accurate data at their fingertips.
The Environmental Agency has been able to formulate a flood risk map for England and Wales, allowing insurance companies to pinpoint with greater accuracy the flood risks attached to individual properties in the UK. It gives an overall assessment of the risks to homes from swollen rivers and coastal areas prone to flooding. It was this data that enabled 100,000 homes in the UK to have their ‘at risk’ status removed, and there's no question that these properties now enjoy much cheaper home insurance because of this.
If you are considering investing in a buy to let property and are concerned about it’s location you can visit www.environment-agency.gov.uk to assess the risk of flooding from rivers and seas to your prospective purchase. The information can also be obtained from the Agency’s 24 hour Floodline service on 0845 9881188.
Even if your property faces some risk, not all properties in these areas will flood.
If you already have a buy to let property or are considering buying a property in a Flood Risk area, here are some tips about how to get the best price on insurance:
Compare quotes with a lot of different insurance companies and speak directly to them or to a broker to find out where they stand on insuring flood risk properties.
You can make your property less risky to insure by taking some measures to protect the property, even if it has never flooded in the past. For example you can buy personal flood water defence systems that protect doors and openings to your home. If you do buy these, make sure they have the BSi kitemark accreditation. Other proactive things you can do include installing non-return valves on drains and covers for air-bricks and looking into different types of water barrier for your property’s boundaries.
Also, check any future plans for flood defences in the location of your property. It could be that measures are in hand to reduce the risk of flood to homes in that area. Although this won't guarantee 100% protection it will reduce the risk of flooding considerably and could help to reduce home insurance premiums.
In the event of water damage to your property, be aware that mould may be present which can present a health risk to your tenants. Even if the flood water has drained away it is not immediately safe for anyone to move back into the property. Taking out insurance to cover Loss of Rent may provide a back-up plan if the worst happens, helping you to accommodate your tenants and cover costs during the claims and repair process.
When considering the purchase of a property investment in a flood risk area, look out for signs of flooding: there will most likely be obvious water damage in some parts of the building plus potentially sewage back up, plumbing issues, overflows from inks and bathtubs, paint that has stripped off the walls and damp. These issues could also have been caused by a major rainfall, which should raise a warning flag.
The bottom line is that a property investor should be aware of all the pitfalls involved with owning a property in a flood-risk area, and make a carefully considered decision based on the availability and comprehensiveness of insurance as well as the on flood history of the property itself.