The UK’s mortgage lenders have come under significant scrutiny from Perry Thomas, the Chief Executive of Flood Re, who has warned that the banking sector is failing to account for the systemic threat posed by rising flood risks. In a recent interview, Thomas criticised banks for operating under the assumption that they "don't need to do anything," suggesting that this lack of action is actively worsening the financial stability of homeowners across Britain.
The core of the concern lies in the disconnect between the duration of standard mortgage terms and the scheduled conclusion of the Flood Re scheme in 2039. With many 25-year mortgages now extending well beyond that expiry date, there is a growing danger that properties currently protected by the government-backed reinsurer could become uninsurable - and consequently unmortgageable - once the transition to risk-reflective pricing is complete.
Flood Re was established a decade ago as a temporary bridge, intended to buy time for the UK to improve its flood defences and for households to implement property-level resilience. However, Thomas noted that while the insurance industry has moved forward with initiatives like Build Back Better, the banking sector has been slower to integrate these risks into lending portfolios. This has led to warnings of a "valuation shock," where banks may be forced to steeply discount the value of assets in high-risk areas as 2039 approaches, potentially creating a generation of "mortgage prisoners" trapped in homes they can neither sell nor re-mortgage.
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The industry is now calling for a more integrated approach to data, specifically through the adoption of Flood Performance Certificates (FPCs). Much like Energy Performance Certificates, these would provide a formal record of a property’s resilience measures, allowing lenders to accurately reflect the true risk - and the value of protection - in their financial assessments. Flood Re has also emphasised the need for banks to support homeowners in investing in property flood resilience (PFR), ensuring that the UK's housing stock is prepared for a future where state-backed insurance is no longer a safety net.
As the cost of global reinsurance continues to climb, having already increased by approximately £100 million over the last three years, the sustainability of the current model is under pressure. Flood Re is increasingly looking toward capital markets and catastrophe bonds to maintain its £3.2 billion capacity, but Thomas’s message to the banking industry remains clear: the long-term viability of the UK mortgage market depends on acknowledging and addressing the reality of flood risk today.
[Main image credit: Chris Homer / Shutterstock.com ]