Mortgage worries persist over flooded areas

UK lenders await Government advice on storm protection

October's deluges have been followed by a plague of rumours and dire predictions. According to some reports, UK lenders are already planning to deny mortgages - redlining - to entire areas. But Halifax, the nation's largest mortgage lender, asserts that it "is not reviewing its lending policy and we do not redline any areas. The Halifax will lend on any property in any location."

October's deluges have been followed by a plague of rumours and dire predictions. According to some reports, UK lenders are already planning to deny mortgages - redlining - to entire areas. But Halifax, the nation's largest mortgage lender, asserts that it "is not reviewing its lending policy and we do not redline any areas. The Halifax will lend on any property in any location."

Other major lenders have made similar remarks. Halifax also explained that its lending would be "subject to the normal underwriting criteria and suitable valuation being obtained." This view, and the linking of mortgages with insurance and valuations, finds many echoes. Stephen Smith, director of housing marketing for Legal and General, says: "It would surprise me if lenders made different decisions from insurers. Lending decisions would be driven by insurability. If a property is insurable, it has a value."

But Richard Brown of Moneynet says: "The central concept underlying lending is if property is readily resellable. I suspect insurance premiums will go through the roof. Some homes may be uninsurable. They will have restricted resell potential. Mortgage lenders will not want to lend because a house is not readily resellable."

But reluctance to lend on particular properties does not constitute full-blooded redlining, and floods do not necessarily entail economic blight either to individual houses or to overall areas. Expect higher premiums and excesses, to be sure, but if insurers don't redline, it seems that the lenders won't either.

"It would be impossible to redline river areas. There is clearly going to be no blanket policy of redlining areas that are vulnerable. I think that would be too crude," says Peter Williams, director of the Council of Mortgage Lenders. Mr Williams says that lenders will want to examine "the plans the government has for flood control, and how the market itself is finally responding. Only 4,000 properties have been flooded, compared with 1.5 million transactions per year, which is less than half of one per cent."

And judging by old patterns, the market response may be one of surprising resilience. "Evidence in the past has been that those (flooded) locations are very desirable. We can not assume that demand for these areas will fall away, and that these properties become both uninsurable and unmortgageable," says Mr Williams.

But a property can be insurable, mortgageable and, thanks to the prospect of a future flood, more costly than otherwise. "It will also depend on what happens to insurance premiums on those houses," he adds. "If those premiums become high, clearly it will affect the market in that people will become more conscious of the premiums, and my guess is that it will restrict the market. People will need higher incomes to afford to buy the property, and also the extra insurance. We are a long way off from that."

Already some agreed sales have abruptly fallen through and properties have plummeted in value.

The cost of owning a home in a flood area will now include steeper premiums, excesses where the owner pays the first £1,000 of any claim instead of £100, and costs for flood protection.

The government's flood protection plan (Planning Policy Guidance PPG 25 - Development and Flood Risk) is in draft stage. "In the short term, lenders would be precipitate in vetoing lending. I think they have got to wait and see government proposals for proper flood defences," suggests David Whittaker of brokerage Mortgages for Business. "It would be a very brave lender caught redlining ahead of future planning."

www.detr.gov.uk/planning