UK Banks Slammed by Flood Re’s CEO for ‘Ignoring’ Mortgage Risks

March 9, 2026 by Alastair Marsh and Olivia Rudgard

The UK’s flood insurer of last resort says the country’s mortgage banks aren’t doing enough to prepare for the risks facing homeowners across Britain.

“Their assumption is they don’t need to do anything,” Perry Thomas, chief executive of Flood Re, said in an interview. “And by not doing anything, they’re just making the problem worse.”

Set up a decade ago to help vulnerable homeowners get affordable insurance, Flood Re is due to be wound down in 2039. Since its creation, however, flood losses have increased while government efforts to build protections have proved inadequate. The program, which currently has £3.2 billion ($4.3 billion) in reinsurance capacity, is now stepping up its reliance on capital markets to replenish its coffers.

An unfortunate side effect of having Flood Re act as a backstop is the moral hazard it’s injected into the banking sector, Thomas said. Over the past decade, the UK has gone “backwards, not forwards” in addressing the financial implications of flood risk, because it’s removed incentives for lenders to act responsibly, he said.

Flood Re’s existence “has removed a lot of the pricing signals, particularly to people like lenders who pay nothing in and just benefit from the scheme and go, ‘ah, we can ignore the problem’,” Thomas said. “And that’s the challenge: absent the pricing signals you’d normally see in a market, how do we create the need for action on the properties?”

A spokesperson for UK Finance, which represents the country’s banks and mortgage lenders, said the continuation of Flood Re — or an equivalent program — will be “crucial” in ensuring that homeowners in areas of high flood risk can access affordable buildings insurance. The banking sector “takes climate change seriously and carefully considers the impact of flooding when making lending decisions,” the person also said.

The UK government estimates there are currently 6.3 million properties across England that are in areas at risk of flooding, a figure that’s set to rise significantly in the years ahead as the fallout from climate change intensifies, according to the government’s Environment Agency.

Lloyds Banking Group Plc, Britain’s biggest mortgage lender, said last year it was studying the connection between climate impacts and its portfolio of home loans, noting that it views potential doubts around the future availability of UK home insurance to be a “key risk” for the bank. Lloyds said last month it “would welcome early certainty on Flood Re’s future or alternative arrangements,” adding that an extension of the program could “potentially support the continuation of insurance provision to properties at high risk of flooding.”

NatWest Group Plc and HSBC Holdings Plc both referenced Flood Re in their latest climate scenario analysis, with NatWest concluding the program was crucial for limiting impairment rates from flood damage. HSBC said “properties are likely to face increased insurance costs, with some potentially becoming uninsurable” if Flood Re were to expire as planned.

Barclays Plc said last year, as part of its modeling of future outcomes, that should Flood Re end in 2039, it would result in “many customers and clients either not insuring, self-insuring or facing significantly higher insurance premiums, driving affordability constraints and significant asset devaluation.”

Spokespeople for Lloyds, NatWest, HSBC and Barclays declined to comment on the Flood Re CEO’s criticisms.

Some lenders are already taking proactive steps to limit their exposure to flood risk. Nationwide Building Society — once seen as an outlier after saying in 2024 it had stopped making loans to some homes at risk of flooding — has emerged as a prescient first-mover amid growing banker anxiety, according to Mark Cunningham, managing director at PriceHubble, a property data company.

“When you take political risk into account,” the likelihood of there not being a replacement for Flood Re after 2039 “is almost exactly zero,” he said. But the “macro risk, if you suddenly pull that rug away, is material.”

James Talbot, executive director of the international directorate at the Bank of England, said in a speech last month that in the short-term UK households are “likely to be cushioned” from the physical impacts of climate change thanks to Flood Re and high insurance coverage. But longer-term, and with Flood Re slated to close in 13 years, “households could face materially higher insurance premia or repair bills, lower house prices and difficulty remortgaging,” he said.

Thomas says mortgage lenders need to start insisting that homeowners flood-proof their properties. Measures can be simple and inexpensive, such as non-return valves on toilets or covers for air bricks, he said.

Flood Re is also promoting a “flood performance certificate” which would show how resilient a property is to flooding. Requiring such certification to be disclosed at the point of mortgage lending would “change the landscape materially,” Thomas said.

The current set-up is “not right,” he said. “So if we’re going to correct that market failure, we need to make sure everyone’s incentivized and pressured to work on the risk reduction of the properties.”

In order to help manage the financial burden ahead, Flood Re last year issued its first ever catastrophe bond, drawing interest from investors specialized in forecasting risks associated with hurricanes and other extreme weather shocks.

Thomas says Flood Re is now planning to “layer up” on cat bonds, taking its inspiration from Pool Re, which is the UK’s terrorism reinsurance program.

Another unintended consequence of Flood Re’s setup is that it currently favors high-end homes, due to out-of-date calculations based on 1991 council tax bands. “That isn’t the group of people that we were supposed to be helping,” Thomas said.

The overarching worry is that banks assume Flood Re will be extended beyond its current 2039 end date, reducing any incentive for the industry to reassess its mortgage risk, Thomas said.

Unless incentives change, the banks are “never going to change,” he said. “There’s going to be no action. The risk is just going to increase, increase, increase. Our costs are going to increase, increase, increase and Joe Public pays for it.”

Photograph: Properties by the River Thames after the river burst its banks following heavy rain near Kew Bridge in London, in 2016. Photo credit: Justin Setterfield/Getty Images

Related:

Popular Today