Flood risk homes left high and dry

Watch out if you have a mortgage and live on a flood plain: if you cannot get house insurance next year, you could - in theory - be asked to repay your loan overnight.

Others could be asked to pay hundreds or thousands of pounds to make their homes less vulnerable to flooding. The position will become clearer over the next few months as their lenders try to persuade insurers to go on providing buildings cover to these 2 million homes.

But some insurers, including market leader Norwich Union, are unwilling to continue insuring at-risk properties when a two-year agreement to provide cover expires at the end of this year.

The Council of Mortgage Lenders (CML) says there will not be an immediate crisis in early 2003 even if cover is not renewed for some. 'Foreclosing on their mortgages is not going to be an immediate option,' says Michelle Vosper of the CML.

The Nationwide accepts that a 'small' number of its borrowers may become uninsurable. But David Hylton, controller of residential credit, says: 'It's in our interests to help them as much as possible. We stand and fall with them.'

Nationwide would lend more to borrowers who could afford it to build individual flood defences around their home or to adapt the property to reduce possible flood damage by, for instance, moving kitchen electrics upstairs. But if borrowers cannot afford the extra money, the Nationwide will not foreclose, he said.

HBOS itself insures about two-thirds of the 2.5 million properties on its mortgage books. Spokesman Jason Clarke says: 'We will make a policy decision as to what we do when the [ABI] moratorium ends.' But he adds: 'We have two hats on - as lender and insurer. We have to weigh up any change we make on the terms of the insurance in the light of the fact that we are also the lender.'

Abbey National is adamant that all its 1.1 million borrowers who are also insurance customers will continue getting cover even if some of its panel insurers pull out of some areas - but spokesman John Grimbaldeston thinks that some postcodes could theoretically become uninsurable: 'This probably has not been thought through by the Government. All of a sudden, you are potentially creating a financial underclass based on flood insurance.'

The British Insurance Brokers Association is trying to persuade insurers to continue cover. Chief executive Mike Williams says: 'We still have four-and-a-half months to go. There is going to be a dilution of the hardening of attitudes by insurers.'