A significant spike in flood insurance rates could be coming to homeowners and businesses on the North Shore.
The rate hikes, slated to take effect Tuesday, are due to the National Flood Insurance Reform Act passed by Congress last year. There are nationwide concerns the changes will make homes unaffordable and send property values plunging in flood hazard areas.
While the reform was passed a year ago, real estate associations and Massachusetts lawmakers are calling for a delay in the implementation so some of the issues can be ironed out.
The reform is designed to make the National Flood Insurance Program “more financially stable and ensure that flood insurance rates more accurately reflect the real risk of flooding,” according to the Federal Emergency Management Agency. The program will phase out some artificially low rates and discounts, which have historically been subsidized by the government.
This is a problem for older homes that were grandfathered in before the program started in 1968 and have been receiving government subsidies, said Amy Wallick, a Realtor for J Barrett & Co. and president of the North Shore Association of Realtors.
“A lot of these older homes that are currently in flood zones have been generally protected from true market pricing for the National Flood Insurance Program,” she said. “Our concern as Realtors is how this is going to affect the affordability and saleability of homes in these flood zones.”
Residents and businesses that already own property in flood zones will see incremental increases of 25 percent per year until their premiums reach a full-risk rate. If a property is sold, the new owner will be responsible for the full rate. Subsidies will no longer be offered for newly purchased properties, lapsed properties or new policies covering properties for the first time, according to FEMA.
Wallick is already experiencing the impact of the changes on a home listed near the ocean in Salem. The current owners pay $2,500 for flood insurance, but the potential buyers got a quote of $10,000 from an insurance agency.