Climate risk and the UK housing market. Canary in the coal mine?

There has been limited focus to date on how rising exposure to physical climate risks, such as sea-level rise, overheating, surface water flooding and subsidence, is increasingly affecting property values, mortgage lending, insurance availability and affordability in the UK.

Earlier this month, we welcomed leading experts from across the financial, insurance and housing sectors to the House of Lords to brief P4P supporters on what these rising physical climate risks could mean for homeowners and the stability of the wider housing market in the future.

What did we learn?

Physical climate risks are already affecting consumers and financial markets. Flooding remains the most prominent physical risk, but heat-related risks and subsidence are becoming increasing areas of concern. Climate risks can affect insurance availability and affordability, mortgage lending, property valuations and market functioning.

Flood risks are rising. Analysis presented at the briefing found that 70% of English constituencies are expected to see flood risk rise by at least 25% by 2050, while one in nine homes built between 2022 and 2024 are located in areas of medium or high flood risk. There is therefore a need to prevent further construction of new unprotected homes in flood-prone areas, alongside wider flood resilience measures and greater use of natural flood management to protect our homes.

‘Climate mortgage prisoners’ are an emerging issue. Research highlighted at the briefing estimated that around 430,000 households could become climate mortgage prisoners by 2050 due to flooding alone. This is where homeowners are unable to obtain affordable insurance, or insurance at all, and as a result may be unable to remortgage or sell their homes.

Better data is changing how markets assess risk. Improved information on drainage, flood defences and climate exposure is changing risk assessments. Some apparent increases in risk reflect better understanding rather than solely worsening hazards. But if risks are left unchecked, they could have knock-on impacts on the ability to insure, lend and move house.

The experiences of flood-affected communities highlight the human impact. Increasingly, people are experiencing repeated flooding rather than isolated incidents, and some homes cannot be made resilient. Flooded households can become effectively trapped, unable to sell and move, while emerging evidence suggests that house prices do not always fully recover after flooding.

The overall message was clear: climate risks are rising, and understanding and managing their implications for the housing market must become an increasingly important part of the UK’s approach to climate adaptation and financial resilience.

P4P Peers will continue to scrutinise these important issues and explore how regulatory and policy reforms could help reduce these risks and support investment in climate-resilient, future-fit homes.

With thanks to the FCA, Aviva, UK Sustainable Investment and Finance Association, Public First and Flooded People for supporting the event.