Does the UK government’s new Flood Re insurance go far enough?

The UK government’s new Flood Re insurance scheme for at risk properties is already under attack before it has even gone live. This comes at a time in the UK is being battered by severe storms with tens of thousands of homes underwater and many more without power. Indeed David Cameron attracted a ferocious backlash from those suffering when visiting affected areas in the UK earlier today.

Details of the government’s new flood insurance scheme, brought in to protect the more at risk areas of the UK, are also attracting a significant backlash especially from landlords who appear to be excluded from the deal.

The Flood Re scheme

The environment Minister Owen Paterson announced plans for a new insurance scheme which will cover up to 500,000 homes in the UK in areas which are at risk of flooding. The scheme, which has been negotiated with the UK insurance industry, will guarantee affordable insurance for those living in at risk areas. However, to qualify for the new cheaper scheme the properties in question will have to be policy holder occupied. Immediately this puts at risk more than 100,000 tenants in the UK who are currently living in rented accommodation which could be at risk from flooding in years to come.

Quote from PropertyForum.com : “We all know that the UK property market is dependent on London but did you know that 25% of UK mortgages are connected with the London property market? Is this too much? Then again the London property market seems to attract massive overseas investment – does this help the wider UK property market?”

While there’s no doubt that covering an additional 500,000 homes from the enormous cost of repairing flood damage is something which has been well received, on the surface the scheme seems ill thought out. The government may well be thinking, why should taxpayers bailout landlords with at risk properties, but the fact is that many landlords have already confirmed that rents will likely rise to cover any increase in flood insurance premiums.

Is this fair?

This is a very tricky situation for the UK government because on one hand it would have been accused of assisting those with more than one property, i.e. the landlords of the UK, at the expense of those on limited income. However, the simple fact is that landlords cannot afford, and why should they, to take the additional hit from increased flood insurance premiums in an industry which has been very buoyant over the last few years.

At the moment there is more than enough demand in the UK rental market to absorb any potential increase in flood insurance premiums. While this will likely place some rental properties out of the reach of those in need of a place to live there would be more than enough people to take up any potential slack. In a quirk of fate, such is demand for social housing that those receiving benefits from the UK government could be forced into the private rental market in the future with local authorities covering the cost of rent. So, inadvertently the UK government could well be increasing its own benefit system payments into the private rental sector?

Conclusion

In many ways the UK government cannot do right for doing wrong because by assisting those with more than one property, i.e. the landlord community, it would face accusations of looking after the rich at the expense of the poor. Inadvertently those 100,000 rental properties potentially at risk of future flooding could be part funded by the UK benefit system if there is a lack of social housing in specific regions of the UK. Therefore, the UK government may actually end up covering part of the bill for increased flood premiums in the future.