This is according to flood science specialist JBA Risk Management which is making the warning ahead of the launch of the Prudential Regulatory Authority’s (PRA) new stress test for lenders, which is set to impact the ongoing assessment of mortgages, loan-to-value rates and renewals.

Indeed, the final details of the PRA’s data requirements on the resilience of banks and insurers to climate change is due to be released in June.

This year’s stress test, which is part of the Bank of England’s (BoE) Climate Biennial Exploratory Scenario (CBES) and the culmination of a number of BoE directives, is widely expected to be based on a fairly prescriptive requirement.

It will call for lenders to adopt multiple time horizons, potentially as narrow as five-year intervals up to 2050.

Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander UK, Standard Chartered and Nationwide Building Society, as well as a select number of insurers, are all set to deliver the results of their climate projection work this September, with the rest of the market expected to be asked to follow their lead.

The PRA will publish the results of its analysis in quarter one 2022.

JBA explained the new stress test recognised the intrinsic link between different players in the financial sector and the need to assess risk in a similar way. It said mortgage availability often depended on insurability and required lenders and insurers to be assessing the risk consistently, especially for properties that fell outside of the Flood Re – re-insurance – scheme which will also come to an end by 2039.

Vanessa Balmbra, property and financial sector specialist at JBA, said: “The impacts of climate change on flood risk can already be felt today, and it’s vital for lenders to start considering the risk.

“The PRA has indicated that all firms are expected to have embedded their approach to climate risk by the end of 2021, regardless of participation in the stress test, and the direction of travel is clear despite the cost implications for the smaller players.

“There are similar moves afoot across the world, with the European Union presently consulting on its stress test requirements due to be brought in in 2022, and regulatory activity in the US, Asia, and China. Closer to home, Ireland is also expected to follow the PRA’s initiative.”

JBA Risk Management’s Climate Change Analytics (CCA) data suite and global consultancy services aims to help lenders meet the physical requirements of the stress test related to flood, enabling them to assess the long-term impacts of climate change on the value of property, over time.

The CCA is being used by two of the UK’s major lenders and includes insights to support long-term LTV mortgage screening, back-book portfolio analysis, impairment forecasts, and default and devaluation insights.

Robert Stevens, head of property risk for Nationwide Building Society, which is already using the CCA data, said: “Flood risk is an important element of understanding the wider and longer-term impacts of climate change on our business and ensures we make safe lending decisions today for the future.

“The flood risk data is a key requirement in being able to respond to the CBES, whilst the drive for this information may be a regulatory one, it also underpins the core climate change lending strategy. It is essential to plan ahead, educate and protect the business and our customers from the impact of climate change over the longer-term.”

The CCA data enable lenders to map the impact of climate change across every five-year time frame from 2025 up to 2100 at an individual property level, taking on board a comprehensive range of climate scenarios and the fact that flood risk is very localised unlike other perils.

The CCA is underpinned by JBA’s detailed suite of data, which is already used by almost 90% of UK property insurers, six of the top 10 banks and lenders, and a large majority of firms in the home-buying process.

Balmbra added: “We already know from our data that floods are likely to increase in severity and frequency, with average annual loss from flooding forecast to increase by up to 30% by 2040 for UK residential properties, with strong regional differences, so the potential impact on property devaluation in these areas is clear.”