When to get building insurance when buying a house?

Figuring out when to get building insurance when buying a house is vitally important to understand as it could impact other things like your mortgage. Often, it can be hard to tell what the right price is for building insurance and what kind of policy to go after so this will also be discussed in the article.

Remove the guesswork and read on for an in depth guide on the topic of building insurance and most importantly, when to buy it. This will ensure you don’t get lost and end up taking out insurance you don’t need like indemnity insurance which isn’t always necessary.

At what stage do you need building insurance in place when buying a house?

If you are buying a house, it is typically necessary to have buildings insurance in place at the stage just before a property purchase is completed. 

This is because the lender who is providing the mortgage will typically require proof of insurance before they will release the funds proposed in the mortgage application. Much like how a lender will ask for rent guarantee insurance when lending for a buy to let mortgage

In some cases, the lender may even require that they are listed as part of the insurance applications to ensure that their investment is protected and oversee the process of applying for building insurance. 

It is important for lenders to have building insurance in place before completing a mortgage as they need to know that the property is able to be repaired or rebuilt if necessary and they don’t lose the asset that the tenant is paying for.

So, to answer the question of when to get building insurance when buying a house, the answer is typically before the purchase of a house – but your lender will make this clear and there will be a straightforward process to follow.

A landlord figuring out when to get building insurance

Why is building insurance important?

Building insurance is important because it protects the physical structure of a property.

Without building insurance, a landlord would be responsible for paying for these repairs out of their own pocket which a lot of landlords wouldn’t have the funds for. This results in them potentially going bankrupt and certainly defaulting on their mortgage.

As a result, building insurance provides peace of mind and security to both the landlord and the mortgage provider as they can know that their home is protected against unexpected events. This is why many lenders require proof of building insurance before they will provide a mortgage, making it a typically mandatory step in the process of buying a home.

Do you need building insurance?

Whether you need building insurance or not is dependent on the situation you’re in. You may or may not need it based on your mortgage and also in what context you are dealing with the property. Whether that be as a tenant, leaseholder, buying in cash or buying a new build.

When to get building insurance if you have a mortgage

If a mortgage broker is in the process of offering you a mortgage, it will usually be clear as to what they expect you to do in order to gain approval for building insurance. This is so they can make sure the mortgage is able to be paid for based on the costs of the insurance included in the mortgage payments.

In addition, building insurance must be taken out because lenders like to know that their property is also safe and free from risk. If they insure it, they can increase the likelihood that the buyer pays off their mortgage and the lender makes money from the interest on their mortgage payments over time.

When to get building insurance if you don’t have a mortgage

Usually, building insurance is only taken out for the purpose of a mortgage. However, you can also take out building insurance if you don’t have a mortgage and this is advisable if you want to reduce the risks associated with your property. 

This typically happens if the home started off under a mortgage and the mortgage is paid off or the property was bought in cash.

Sometimes, building insurance is included inside of the policies of your general home insurance, but this would have to be investigated as it may just be contents insurance that is included. This wouldn’t cover the structural cost of the building so if there were any major damages that occurred you may still have to cover these costs yourself.

A home insurance policy that has building insurance included

When to get building insurance if you’re a leaseholder

Building insurance for a leasehold property may also be called leaseholder insurance. Most of the time, if you are buying the leasehold using a mortgage, the lender will specify that the leasehold insurance has to be in place before the lease can be bought.

The cost of building insurance in instances like this may be complicated to work out as leasehold properties are often flats which have shared living space. It may be that a building insurance cost would be already given to you as you buy your property because the building insurance has to cover your flat and any shared areas of the premises you are living in too.

For example, if you live in a house that you are buying as a leaseholder that has shared garden space you pay service charges for, the freeholder may quote a building insurance cost for the shared space and the garden before you move in.

This cost would be included amongst the mortgage cost given by a lender and then there would be a final assessment made on whether the leasehold buyer can afford the total of these costs.

When to get building insurance if you’re a tenant

Under no circumstance should a tenant be obliged to pay for the building insurance of a property as this is the responsibility of the landlord. However, it could be that the tenant is paying for the building insurance through their rental payment as the cost for building insurance is included in the rents.

Either way, the tenant should have no investment in insuring the building’s structure in this way so they shouldn’t liaise with insurance companies, negotiate on policies or take out their own insurance on top of any building insurance policy the landlord has in place.

When to get building insurance when buying a new build

Usually, from the day you exchange contracts with the developer and complete the sale of the property, building insurance would need to be taken out. This is because in order to gain approval for the mortgage when buying a new build, the lender would need some kind of proof of insurance.

Lenders have a long term interest in the structure of a property, as if the new build property was to get damaged, the homebuyer and the lender both lose money if the property isn’t able to be rebuilt.

This means not only will the lender need to ensure the property has insurance, but the building insurance also needs to be able to show it can cover the value of the property. As a result, lenders are more likely to go with more expensive policies that cover every bedroom of the property like bedroom rate insurance. 

Bedroom rate building insurance is more likely to overestimate the value of a property and there typically is no room for error unlike with sum rate insurance which meets the reinstatement cost of the building exactly based on changes over time and factors like the economy.

New build flats that need building insurance

What is building insurance?

Buildings insurance covers the cost of repairing damage to the structure of a property. If your home is damaged by things like fire, floods, or unexpected physical damage like subsidence, the cost of repairing or rebuilding the property can be significant. 

This type of insurance is often combined with contents insurance to protect personal belongings. The cost of rebuilding a property from the ground up is typically included in building insurance and may differ from the market value of the home. It is therefore very much reflective of the reinstatement costs of a property. 

Some policies may also cover structures around the property, such as garages and outside walls. That isn’t necessarily part of the main part of a home.

Sum insured building insurance

Sum insured building insurance is the type of building insurance taken out by homeowners where the amount you pay for your policy covers the buyer in the event that they had to rebuild their home from scratch.

In these cases, it is most likely there is an index-linked policy which is best for both the insurance company and the buyer as the price of rebuilding a home may change. These types of policies follow the market and the price that is covered or the “sum insured” will reflect what is paid in the policy.

This means you only pay for the cover you need, although it also may come with the disadvantage that these policies are hard to calculate.

Bedroom rates building insurance

Bedroom rate policies are less accurate as they go by the number of bedrooms in a property and they tend to exclude other factors in the calculation of how much the policy must cost. While they are less accurate, they tend to never under-insure a buyer.

This means the sum insured is higher than what the value of the house actually is and this protects you against having to take out money from your own wallet in the event that you may need to rebuild your home and it also means the cost of rebuilding your home won’t need to be calculated.

Nonetheless, this type of policy runs the risk of you paying for more cover than you need.

How to get building insurance when buying a house

In order to take out building insurance, it is necessary to follow the below steps in making sure your building is protected from any future damages to the structure of the premises.

Work out the rebuild value of a home

The rebuild value of a home is the first thing you should calculate. This process is quite complicated and dependent on the type of property you have. It can be done using a calculator or it could be done using the help of a surveyor or building valuation specialist.

Once this figure is determined, it is a lot easier to find out what the insurance cost is as this cost is based on the rebuild value of a home in the event that the property was to be damaged.

Calculating the rebuild value of a home for building insurance

Decide what type of cover you need

Before comparing prices, decide on whether you would like to take out sum insured or bedroom rate insurance. This is completely up to you and the risk you want to take. Usually, sum insured building insurance has a higher premium because it is based on the changing rate of the cost to build a house.

However, it could be that a certain type of insurance is required by a mortgage lender so it is not applicable to take out another type of insurance. You will have to check with a mortgage provider what this is. Most of the time though, a mortgage adviser will choose building insurance on your behalf.

Shop around and compare quotes

If you have a specific preference on a company or you are already aware of the type of policies they offer, you may want to go straight for a direct deal with them. However, to shop around, you can choose to go with a mortgage broker who will guide you through the options that are available to you. 

Mortgage brokers can also be based online and common choices for this include MoneySuperMarket found here, GoCompare or even CompareTheMarket.

Either way, don’t be afraid to negotiate whether that be on the phone or through email or text to find the best deal for you. Compare the quote to what the value of the property is to see if the insurance policy you’re taking out is too excessive.

Pay the premium

You will then need to pay the premium to activate the coverage of your building insurance to make things official. This may happen automatically if you take out a mortgage and building insurance is included within the payments you make.

Sometimes, you could also be charged a conveyancing fee to prepare your building insurance and there are also a host of costs associated with valuing your property so you can apply for insurance. These costs get more extreme if you have a large property perhaps with a lot of grounds or multiple bedrooms as you may need to consult surveyors and professionals to come up with an accurate figure.

If your home is a more conventional 2, 3 or 4 bedroom house, you should be able to get away with using a reinstatement cost calculator like this one to help you out in this step.

Keep the policy documents in a safe place

With the additions of technology and digital storage systems, this step is less important as days go on. However, you should make a note of the policy documents of your building insurance as this may include things that aren’t accessible through email.

Examples include codes and passwords that are used to log in to the policies website. Either way, if you are able to keep hold of these documents and also make sure you know where to find them digitally. If it is necessary due to you needing to make a claim or change your policy for whatever reason, you would know exactly where to find your building insurance documents so you can go ahead with the changes.

Review the policy periodically

If you haven’t taken out a sum insured policy, the rate you are charged for your policy will remain stagnant no matter if the price to repair your property structurally goes up or down. Therefore, especially if you have no mortgage left on the property, it is a wise idea to check if there are better deals on the market every few years.

Reviewing a building insurance policy

How to get building insurance before exchange

It is important to have building insurance in place before the day of exchange when buying a new home. By coordinating with your solicitor and choosing a policy start date that aligns with the exchange date, you can avoid any last-minute scrambling. 

This also gives you time to research and compare quotes to ensure you have the right level of coverage at a price that works for you. It is important to get the right level of coverage, as your policy should be able to cover the full cost of rebuilding your home if necessary. 

You may be able to transfer your current policy to your new property, but be sure to check that your existing property is still covered by your own policy or the buyer’s policy if you are in a chain.

In closing

In conclusion, it is important to have building insurance in place before you complete the purchase of a new home most of the time but the type of insurance you take out and if you have to take it out at all will depend on the type of property, you’re buying, the preference of a lender and your tolerance for risk.

By shopping around and comparing quotes from different insurers, you can find the best policy for your needs.

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Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.


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