What the Mortgage Market is Telling Us About Risk in 2025

As all advisers, homeowners, and lenders alike have experienced firsthand, the mortgage market is often unpredictable and, at times, turbulent.

Concerns over affordability, rising premiums, and GI requirements from lenders are often at the forefront of consumer behaviour, forcing many homeowners to turn to comparison sites, where they can purchase their policy. The problem is, customer understanding of what constitutes an ‘adequate’ policy can vary, with aggregators offering little in the form of support and clarity.

Just a minuscule sliver (4%) of UK homes are accurately insured, with 76% underinsured and 20% overinsured, meaning crucial advice is needed to close this protection gap; advice that advisers have in abundance.

By addressing obstacles like affordability, rising premiums, and lender insurance requirements, advisers can help clients understand these factors, increasing the chances of ring-fencing homeowners for future business.

Climate Change Affecting Mortgage Lending Activity

Flood Risk

Flood risk is reshaping mortgage underwriting in the UK, as providers seek new ways to provide cover for those at risk of flooding, increasing the availability of insurance products to homeowners.

“Total properties in areas at risk of flooding from rivers and the sea is around 2.4 million…
Properties in areas at high risk of flooding from rivers and the sea increased to 367,900, which is an 88% increase from our previous assessment.”

– 2024 assessment report from the Environment Agency

As exposure to harsher elements has risen, fewer homes have been less likely to acquire insurance, putting a strain on lenders to facilitate would-be borrowers.

However, with technology advancing and risk data becoming more accurate, home insurance providers are finding new ways to find coverage for their clients, protecting more homeowners across the country at risk of flooding.

A spokesperson for the Department for Environment, Food and Rural Affairs stated that over half a million properties in the UK had benefited from the government-backed Flood Re scheme, with 99% of households at high risk of flooding obtaining quotes from 15 or more insurers. This is compared to just 9% before Flood Re was introduced.

Rainfall and Storm Damage

According to the Met Office, annual average rainfall amounts between 1991 and 2020 saw over 3,000mm of downpour in some regions of the UK, particularly on the west coast. Snowdonia, the Lake District and the Scottish Highlands have all seen over four metres of rainfall in some instances.

This amount of water can, of course, increase the risk of flooding and make home insurance harder for consumers to purchase.

At the end of 2023, we saw findings from the ABI (Association of British Insurers) that storm claims were the highest seen on record since this data began.

4.6 million properties are in areas prone to surface-water (rainstorm) flooding, with 1.1 million at high risk of surface-water flooding. – National assessment of flood and coastal erosion risk in England 2024

As a direct counter, the government has recently invested £2.6bn into boosting flood defence, claiming every £1 spent on these precautionary measures saves £7 in capital spend.

Subsidence

Much like flood risk and storm damage, subsidence also affects the ability of homeowners to acquire mortgages. As per Mainmark, Victorian and Edwardian properties are most susceptible to subsidence due to the fact that they were never designed to deal with weather conditions like we see today.

Property Reporter delves deeper, revealing that shallow foundations significantly contribute to the issues facing these structures, with some properties built on foundations as shallow as 20cm deep.

With soil quality fluctuating amidst extreme weather, moisture levels in the ground around these properties can increase risk levels, especially when clay is involved.

Lenders use exclusive data to make more informed decisions about their current mortgage applications and future mortgage business, safeguarding their investments against climate-related risks.

What All This Means For You and Your Clients

There has been a prominent protection gap in the market. However, new technology has been crafted to close this gap, providing lenders, advisers and homeowners with more accurate data to find accurate, quality home insurance.

However, new technology is fast-accelerating, providing lenders, advisers and homeowners alike with more accurate data, using insight to offer more accurate reflections of risks in the UK.

Schemes such as the government-backed Flood Re, along with technology like Insurer Hosted Pricing (IHP), are now typical in the industry, directly combating risks to ensure more homes receive the cover they need.

You can utilise technological advancements and market developments to provide accurate offerings to your clients and inform them of potential risks they could experience, based on accurate data.

Identifying these risks early in your process lets you provide a tailored experience to your clients, finding relevant products and helping to boost client understanding throughout.

Higher-risk properties may need specialist cover to obtain cover, so having access to GI panels, such as Source’s, with specialist products allows you to expand your offering and provide an expansive product selection to your clients.

To learn more about Source’s panel of insurers, including non-standard specialists, register to use The Source today.

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