Major London homes are increasingly on the front lines of extreme weather | Today’s news
(Bloomberg) — After more than a decade of decline caused by tax increases, economic and political upheavals, London’s luxury housing market has a new downside to contend with — unmanageable heat and the risk of flooding.
The rating comes from Prime Purchase, the Savills UK branch which represents property buyers at the top end of the property market. Guy Meacock, director of Prime Purchase, says too many premium homes in the UK capital are ill-equipped to deal with the effects of increasingly frequent shocks from extreme weather.
“If London gets a reputation for architecture that is fundamentally unfit for purpose, then it’s not ridiculous to think that will have as far-reaching an impact on property values as anything else,” Meacock said in an interview.
The development follows a summer which exposed London’s vulnerability to extreme heat. Air conditioning remains a rarity, existing in less than 10% of properties across the country. Even basic cooling features such as blinds and awnings are proving hard to come by for some of London’s most expensive properties. Even more worrying, perhaps, is the risk of flooding in the city as crazy downpours fueled by climate change make it increasingly difficult to insure a growing number of properties – including those with luxury mega-basements.
The concerns add to a list of headwinds facing a UK property market already under pressure from high borrowing costs. Nationally, house prices fell on an annual basis in August for the first time since 2023, according to the latest figures from Lloyds Banking Group. Central London property values fell 26% from their peak in 2014, according to Savills.
Heat, in particular, is becoming increasingly relevant for some of London’s most expensive boroughs, according to Meacock.
He says international buyers are put off not only by a lack of features to protect properties from weather-related risks, but also by what they perceive to be fiendishly complex planning rules that would complicate any efforts to upgrade homes.
“We’re dealing with a lot of American buyers at the moment and the topic of air conditioning comes up for them every time,” he said. Buyers are “shocked” to discover how uncommon air conditioning is in luxury London homes, so “your pool of potential properties suddenly shrinks.
Climate change is leaving a significant mark on the UK capital. The government’s Environment Agency estimated in July that nearly 320,000 homes and businesses based in London are now at “high risk” of surface water flooding. In August, the Mayor of London’s office warned that extreme heat had become a “major and growing threat to public health” in the city, with 86% of Londoners surveyed complaining of overheating in their homes.
“The impact of climate change has a profound effect on people’s thinking,” Meacock said. “And while it doesn’t really have a significant impact on values yet, it will likely be the way to go.”
He says London’s so-called golden postcodes, which are found in the boroughs of Kensington and Chelsea, as well as parts of Westminster and its surrounding areas, are particularly vulnerable to mood swings from international buyers.
With around half of buyers investing in such properties coming from outside the UK, sellers “can’t rely purely on domestic wealth, especially not in the current tax climate,” Meacock said.
A big concern is the declining availability of insurance, which relates to how likely the UK’s insurer of last resort – Flood Re – will provide a policy. The state-backed scheme only covers homes built before 2009. In July, Flood Re unveiled a plan to ensure the scheme does not disproportionately favor wealthy homeowners, meaning commercial insurers with multi-million pound properties will not enjoy the same public support as before. This change is expected to come into effect from 2028.
Flats in buildings with more than three properties also do not qualify for Flood Re. Tracey Garrett, chief executive of the National Flood Forum, a not-for-profit organization that advises homeowners, says the group’s helpline “frequently” hears from Londoners who can’t get affordable cover.
“They just get by without flood insurance,” she said. This means that you end up paying the cost of the flood damage yourself. And while they “may be asset rich,” they aren’t necessarily “overnight rich,” Garrett said.
Staff at insurance broker Howden Group are already fielding calls from clients who fear they will not be able to sell luxury properties due to insufficient cover. George Seatter, client director at Howden Private Clients, says he received a call earlier this year from an agent representing the seller of a £2m property built in 2019 in Buckinghamshire, west of London. The property’s location near the River Thames, combined with the fact that it was not covered by Flood Re, initially made it difficult for buyers to find insurance.
Commercial insurers “would map the property, see it’s in a high flood risk area,” Seatter said. “They would have looked at the fact that it would be a second home and built after 2009. They would have known they couldn’t transfer it to Flood Re and that would have been the end of the conversation.”
In this case, Seatter says Howden was able to secure a policy backed by an American insurance company. Howden’s analysis of the site found that its precise location in relation to the river did not pose a disqualifying risk. Seatter says insurers investing in more detailed analytics are taking business from competitors spooked by the broader trend.
“From a flood risk perspective, we do this all the time,” he said. “There’s more and more real estate in flood-affected areas,” and as an insurer, “then you can take that off your books, so to speak, and you can pass the cost on to the client, almost, why not?”
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