Facing the flood: understanding how climate risks could impact your home purchase

As a homeowner or prospective buyer in Australia, understanding climate risks is no longer optional – it’s essential for protecting your property and financial future. With extreme weather events becoming more frequent and severe, flooding poses one of the greatest threats to homes across the country. Increased rainfall, rising sea levels, and storm surges are placing more properties in harm’s way, leading to significant financial consequences.

Being informed about how flood risks impact property values, insurance costs, and mortgage approvals can help you make smarter real estate decisions. By proactively assessing potential threats and exploring ways to mitigate them, you can safeguard your investment and ensure long-term security for your home and family.

Flooding from rivers, estuaries, and rising sea levels is the most significant physical climate risk to properties in Australia. The increasing frequency of extreme weather events has led to devastating losses, particularly in New South Wales and Queensland. In 2022 alone, the total estimated cost of East Coast flooding reached $9.6 billion, with over 240,000 flood insurance claims submitted. Lismore, NSW, experienced floodwaters reaching 14.4 meters, while Sydney saw more than 50,000 homes evacuated.

The estimated insurance bill for Sydney’s 2022 floods was $4.3 billion, ranking as the fourth most costly weather event in Australian history. By 2050, the average insurance claim for properties in flood-prone areas could reach $45,000, causing insurance premiums to skyrocket, making coverage unaffordable or even impossible for many homeowners. This, in turn, affects mortgage approvals and creates a ripple effect throughout the property market.

Flood risk significantly impacts property values. Research from the University of Technology Sydney (UTS) found that homes in a 1-in-100-year flood zone (AEP 100) had a 10.8 per cent price discount, while those in a 1-in-500-year flood zone (AEP 500) had a 4.4 per cent discount. Homes in a 1-in-1000-year flood zone (AEP 1000) showed no discount. However, the misconception that flooding occurs only once every 100 years has been disproven by the increasing frequency of extreme weather events. While discounted properties might seem attractive to buyers, they come with considerable risks that must be carefully weighed.

Home insurance affordability and availability are being reshaped by climate change. According to the Institute of Actuaries Australia (IAAust), the average Australian household spends approximately 1.1 weeks’ worth of gross annual income on home insurance (about A$1,500). However, households in flood-prone locations spend up to four weeks’ worth of gross income on insurance, and approximately 1.6 million households were expected to face insurance affordability stress in 2024. Standard home insurance policies often exclude certain flood-related damages, such as storm surges, underground water leaks, and external damages like driveways and fences. It is essential to thoroughly review insurance policies and consider additional coverage where necessary.

Mortgage approvals are increasingly tied to climate risk exposure. The Commonwealth Bank estimates that 39,000 properties worth $17 billion are at severe flood risk. Lenders now scrutinize properties based on their ability to obtain insurance and withstand climate-related damage. If a property is deemed high risk, banks may require higher interest rates on loans, deny mortgage applications altogether, or demand additional flood mitigation measures before approving a loan. For homebuyers, understanding flood risks is no longer optional—it is essential for securing a stable financial future.

Some homeowners in flood-prone areas are considering relocation, but government buyback schemes have had mixed success. The NSW state government’s voluntary buyback initiative has been hindered by the reality that selling in flood-prone areas often does not provide enough funds to purchase homes in safer locations. For those choosing to stay, resilience measures such as elevated homes, improved drainage systems, and flood-resistant materials can help mitigate damage, though the costs of these adaptations can be significant.

Beyond financial and physical damages, flooding takes an emotional and psychological toll on affected communities. The Lismore floods of 2022 displaced thousands, leaving many struggling to recover. A survey by Southern Cross University found that 52% of flood victims were living in partially repaired homes, 26% were in temporary accommodations such as caravans or staying with family, 18% were in insecure housing like tents or rentals, and 4% had left the region entirely. Most concerning, 60% of respondents reported struggling to cope with the stresses of recovery, highlighting widespread mental health challenges and post-traumatic stress disorder (PTSD) among flood victims.

When purchasing a property, buyers often rely on the 10.7 Certificate from local councils for flood risk information. However, this document has limitations, as flood risk assessments vary between councils, many reports do not account for climate change, and data may be outdated or overly conservative. A more accurate approach involves obtaining advanced climate risk reports that incorporate predictive climate modeling.

The ClimateIndex™ Report from Groundsure offers a clear and accurate assessment of flood risks for individual properties. Unlike traditional reports, ClimateIndex™ integrates climate change projections, providing a realistic view of future risks. With this report, homebuyers can understand the real flood risk of a property, make informed decisions about buying, selling, or insuring a home, and secure mortgage approval by demonstrating proactive risk assessment.

Buying a home is one of the most significant financial decisions a person can make. Understanding flood risk is crucial to making a sound investment and protecting the future of your home.

To take action, download our free e-book, “Facing the Flood: Understanding How Climate Risks Could Impact Your Home Purchase,” and get a ClimateIndex™ Report to assess flood risks for your property: https://www.groundsure.com.au/facing-the-flood-understanding-how-climate-risks-could-impact-your-home-purchase

Speak to your conveyancer about flood risks and ensure they are using accurate, climate-aware data. For more information, visit www.groundsure.com.au or contact us at info@groundsure.com.au.

Or speak to our dedicated Business Development Manager, Andy Crawshaw, directly at: andy@groundsure.com

Don’t let flood risks catch you off guard – be informed, be prepared, and protect your home today.