Regulator examines how flood risk relates to the mortgage market in England

Around one in seven mortgage contracts in England are linked to postcodes with some level of flood risk, according to the City regulator.

The Financial Conduct Authority (FCA) said that understanding geographical patterns could help identify where climate-related risks may have the greatest effect on consumers and mortgage lending if flooding becomes more frequent or severe.

High-risk exposure to surface water flooding is particularly concentrated in and around London – while exposure to flooding from rivers and the sea is highest in Lincolnshire and East Yorkshire, where a large portion of postcodes fall within medium and high-risk categories – the analysis, published on the FCA’s website, indicated.

The FCA said the research is a “high-level view of exposure” using publicly available data and should not be interpreted as an assessment of individual properties, firms or consumer outcomes.

The research looked at flood risks at a postcode level rather than for individual properties.

The regulator said the analysis is intended to support understanding of overall exposure and regional patterns, but nothing more granular.

Richard Pinch, senior director at banking and credit advisory consultancy Broadstone, said: “For homeowners, the consequences of flood risk can be severe, from soaring insurance premiums and falling property values to difficulties remortgaging or selling.

“In the worst cases, households could find themselves trapped in properties that are increasingly difficult to insure or finance.”

He added: “Flood risk also presents a significant challenge for mortgage lenders, threatening property valuations and potentially eroding the value of the security backing their loans.

“As extreme weather events become more severe, lenders could face greater credit losses and increased risks across their mortgage portfolios.

“The challenge will be managing these risks without restricting access to mortgage finance in flood-prone areas.

“More sophisticated climate risk modelling, stronger flood defences and closer collaboration between lenders and insurers will be critical to protecting both borrowers and the wider mortgage market.”