Landlords with tens of thousands of buy to let homes in high risk flood areas may be left marooned by the new Flood Re scheme that started on April 4.
Flood Re replaces old agreements between insurance companies and the government to cover to homes and businesses in places liable to flooding.
The new scheme does not cover buy to let homes or other commercial property, which raises a host of issues for property owners and insurers.
Confusing and overlapping rules make life difficult for both sides.
For instance, the government adopted the European Mortgage Credit Directive in March. The directive designates landlords with a single rental property as ‘consumer’ landlords, which could put them outside of the commercial lending bracket.
However, whether insurers view consumer landlords as a property business and deny cover or hike premiums remains to be seen.
The new 0.5% rise in Insurance Premium Tax (IPT), which is levied against buy to let and commercial property buildings, contents and rent guard insurance will also help contribute towards an extra £700 million the government wants to spend on flood defences.
Chancellor George Osborne announced the extra tax in his Budget 2016 but failed to mention landlords putting money towards local flood defences through IPT are also those most likely to face cuts in cover or price hikes under Flood Re.
Insurers reckon around 110,000 homes will cost more to insure or may become uninsurable as a result of the new measure. Thousands of these homes are buy to lets, holiday lets or second homes, which are also excluded from Flood Re.
Trade body The Association of British Insurers argues that the Flood Re scheme is not suitable for covering commercial properties and will not be extended to protect them.
“Where small businesses face difficulty in finding insurance due to flood risk, then other solutions can be explored,” says the ABI web site.
“These could include ways of reducing flood risk, whether more specialised products could help or whether the government could fund support through business rates, corporation tax or a new measure.”