Flood-Soaked U.K. Homeowners Face Decline in Values: Mortgages

Homeowners in some of Britain’s wealthiest districts face a drop in property values and the prospect their homes may be uninsurable as record floods blight towns along the River Thames.

About 5,800 homes have been flooded in towns including Chertsey, Egham and Datchet after England endured its wettest January since 1766. Almost 55,000 homes with a combined value of about 21 billion pounds ($35 billion) are in areas that have been subject to severe flood warnings, according to real estate broker Savills Plc.

“The repercussions for property asset values are absolutely huge,” said Hugh Fell, managing partner at property broker George F White LLP and a former member of the Royal Institute of Chartered Surveyors valuation board. Some homes have lost more than half of their value, making them “virtually unsellable,” he said.

While the floods haven’t posed a serious threat to London’s real estate market, where home prices have gained 40 percent since April 2009, the hardest-hit areas have been commuter towns along the Thames that have benefited the most from the housing boom, a string of historic villages along the Thames in the counties of Berkshire, Hampshire and Surrey.

Virginia Water, the first town outside London where the average house price exceeded 1 million pounds, according to website Zoopla.com, has been under a severe flood warning. The town is home to the Wentworth Golf Club, set to host this year’s PGA Championship, as well as properties owned by musicians Cliff Richard and Elton John.

Olde Bell

In Hurley, a rural parish in Berkshire, the Olde Bell Inn that dates to 1135, has closed its doors until at least Feb. 24. Eton and Castle, home to the Eton College private school attended by Prime Minister David Cameron, has also been endangered. The 817 homes there are worth 690,000 pounds on average.

“If I’m asked to go and value a property for the bank, I’ll be asked to comment on its marketability,” Fell, whose agency is based in Durham County, said by phone. “If it’s flooded or at future risk, it’s going to be really difficult to sell. As soon as you say that, the mortgage company will say it’s not suitable for lending.”

A property that can’t be mortgaged loses 70 percent of its potential buyers, Fell said. A home that becomes uninsurable, and therefore only available to cash buyers, loses as much as 20 percent of its value, according to Richard Sexton, a director at property appraisal firm e.surv.

Lower Value

River levels on the Thames, though falling, remained high after more than two months of downpours, the U.K. Environment Agency said on its website. Water from rainfall on Feb. 14 and 15 is filtering down to areas already inundated after the earlier storms, according to the agency.

The Environment Agency downgraded 14 severe flood warnings for the River Thames on Feb. 17, leaving two in place on the Somerset Levels. A severe warning is an indication of a threat to life. A further 88 flood warnings and 132 flood alerts were in place as of 12:50 p.m. today in London.

Berkshire, Hampshire, Surrey, Sussex, Kent and parts of London remain at risk of groundwater flooding, the agency said.

A preliminary agreement signed in June by the government and the Association of British Insurers would change the current system where homeowners in low-risk areas subsidize those living where flood danger is high. A new plan set to start in 2015 would exclude any home built after 2009 or in the highest tax band. It also won’t include leasehold properties or council homes.

Insurance Deal

Homeowners in areas with a high flood risk have been able to buy insurance with no cap on its cost as part of the deal reached between insurers and the government in 2000. Flood RE, the new agreement being considered, would create a fund to provide payouts for properties insurers won’t cover.

“The whole issue of flooding has become immediate, as opposed to it being a problem once in every 100 years,” Clive Beer, head of rural professional services at Savills, said by phone. “So even if you can get insurance, the premium you need to pay is going to be a huge factor.”

Cabinet Office ministers Oliver Letwin and Jo Johnson were among those due to hold talks yesterday with the chief executive officers of Aviva Plc, Axa SA, Lloyds Banking Group Plc and Ageas to discuss how to deal with the floods. Insurance costs may reach 1 billion pounds by April, Deloitte LLP said by e-mail.

Outlook Unsettled

“Ministers have requested an operational briefing on the immediate and longer-term practical recovery process to getting people back on their feet after the flooding, and the steps the industry is taking to ensure this process is as quick and simple as possible,” according to the statement from Cameron’s office.

The Met Office, the U.K. weather forecaster, has said the outlook for this week is “unsettled.” While it predicted less extreme downpours and winds, it maintains a yellow rain warning, the third-highest level, for southwest England, including Somerset. It said as much as 2.5 centimeters (1 inch) of rain may fall.

Cameron said money is “no object” in tackling the effects of the floods and on Feb. 17 announced a 10 million-pound support program for affected businesses. That’s on top of a Feb. 12 pledge to make 10 million pounds available for farmers to repair damage and install flood-prevention equipment.

The Environment Agency has ordered temporary defenses from Sweden and the Netherlands. It’s erecting barriers in Chertsey, after working on Feb. 13 to protect the southern cathedral city of Winchester from the rising River Itchen.

“Anybody that has suffered a flood event in a house will tell you how bloody miserable it is, shoveling out mud and sewage while all your possessions are damaged,” Fell said. “People are going to pay less money for a home that has flooded.”

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