The UK's biggest mortgage lender has offered a lifeline to existing customers who live in flood-prone areas.

The Halifax said it would continue to offer cover for at least another three years for existing mortgage customers, who have building or contents insurance with the bank.

Any premium rises will be capped at 5% on top of standard annual increases.

The Halifax's announcement comes ahead of the expiry of a cover agreement between the insurance industry and the government.

Until the end of 2002 insurers have agreed to maintain flood insurance for existing policyholders.

The Association of British Insurers is expected to make a policy announcement soon about what will happen when the moratorium ends.

Moratorium ends

Halifax's announcement applies to existing Halifax, Bank of Scotland and Intelligent Finance mortgage customers holding their building or contents insurance with the group.

A spokesman for the Halifax told BBC News Online that he hoped its announcement would start a debate about flood defences.

"The clock is ticking, and the end of the year is coming," he said.

"Customers want certainty and clarity."

The commitment will remain in place until at least 2005, the bank said, but could continue into the future.

Existing mortgage customers who hold their insurance elsewhere can transfer to the Halifax before the end of 2002, the Halifax said, and be eligible for cover.

New mortgage customers who take out household insurance with the group before the end of 2002 will also qualify.

But if people want to sell their home after 1 January 2003, Halifax will offer a commitment to continue cover.

The new new owner must take out a Halifax mortgage to qualify.

The future

The future is more uncertain for new mortgage customers or anyone switching their insurance beyond 1 January 2003.

Royal & Sun Alliance, which is the sole underwriter for Halifax's insurance products, has not yet announced its own approach to flood prone areas.