Around 15% of mortgage contracts in England are linked to postcodes with some level of flood risk, according to analysis by the Financial Conduct Authority (FCA).

The FCA mapped mortgage postcode data against Environment Agency flood risk classifications for flooding from rivers, the sea and surface water, exposing the potential impact of climate change on homeowners, lenders and the wider mortgage market.

Exposure varies by location and flood type, with high-risk surface water exposure concentrated in and around London. Essex had the highest proportion of postcode centres in the high-risk category, at 6.5%. Flood risk from rivers and the sea was most pronounced in Lincolnshire and East Yorkshire, where 8.5% and 7.7% of postcode centres respectively fell into the medium- and high-risk categories.

The analysis found no clear or consistent relationship between higher loan-to-value (LTV) mortgage lending and greater flood risk exposure. It also found that surface water flood exposure was broadly similar across deprivation levels, while exposure to river and coastal flooding was spread across communities with different levels of deprivation.

"Climate-related risks are increasingly relevant to financial services, affecting consumer outcomes and the effective functioning of markets," the agency said.

The FCA stressed that the findings provide a high-level picture of mortgage lending exposure rather than an assessment of individual properties or specific consumer outcomes. The analysis is intended to help identify where physical climate risks could become more relevant to financial services and where further attention may be needed.

Richard Pinch, senior director at banking and credit advisory consultancy Broadstone, said the findings raised concerns for homeowners who could face difficulties insuring or selling their properties, as well as lenders with exposure to affected mortgage portfolios.

“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 said.

Pinch added that flooding could threaten property valuations and the value of the security backing mortgage loans, potentially increasing credit losses as extreme weather events become more severe.

“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,” he said.

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