Is buildings insurance required for a mortgage?

When purchasing a property, especially if you’re a first time buyer, there are so many things to think about that you might never have needed to before. One of these things is insurance. What is it, which types of insurance do you need and why? Are they legal requirements or nice to haves? Buildings Insurance is one of these categories, alongside contents insurance and even life insurance. But don’t panic – Nest GI are here to help with our handy guide on buildings insurance and whether or not it is a mortgage requirement.

What is Buildings Insurance?

Buildings Insurance is a way of covering the cost of repairing or rebuilding your property if it was damaged in an event such as a flood or a fire. It protects you against the cost of fixing the structure of the building, permanent fixtures and fittings such as kitchens and bathrooms, and outside buildings like garages and sheds.

A good policy would adequately cover the cost of rebuilding your home if the worst should happen, as well as alternative accommodation if you can’t live in your home whilst the work is being carried out.

However, buildings insurance does not cover your possessions. Contents insurance is required to protect these.

Is buildings insurance a mortgage requirement?

While buildings insurance isn’t a legal requirement, mortgage lenders will stipulate that adequate buildings insurance is in place as a condition of your mortgage and held throughout the whole mortgage term. The insurance amount protected must be at least enough to cover the full rebuilding cost of your home. You have the right to choose who you insure, you do not have to take cover with the lender or any insurer they recommend.

When buying a property, your buildings insurance policy should be taken out when you exchange contracts, this is typically when you become legally responsible. If you are the seller, you are responsible for your property until after the sale is completed, so you should keep your insurance cover until then.

For new build properties, cover is not usually required until the completion date however always ask your solicitor if you aren’t sure.

If you’re a leaseholder, it depends on the contract. You might have to take out buildings insurance with one particular company, or the freeholder may take out insurance and charge you for it within your regular service charges.

Do you have to get my buildings insurance from your mortgage provider?

As we briefly mentioned earlier, you don’t have to take out an insurance policy with your mortgage lender. If they offer you a buildings insurance policy, you are under no obligation to buy it.

The policy offered by your provider may appear suitable and cover the mortgage amount. However, it’s worth considering that you could potentially find better value by shopping around.

If you are working with a mortgage broker, they might also propose arranging buildings insurance on your behalf. However, there is no obligation for you to accept their recommendation. Take your time to explore your options and select the buildings insurance that provides you with the assurance you require and at the right price.

What about if you don’t have a mortgage?

Again, buildings insurance isn’t a legal requirement, but it is an advisable extra. Even if you own your property outright, would you be able to cover the cost of a rebuild if it was destroyed?

How much buildings insurance cover do you need?

The most important factor in deciding how much insurance cover you need is the cost of completely rebuilding your home. This is called the sum insured, and it isn’t necessarily the same amount that you bought your home for, or its current market value. Rebuild costs are usually less than the current value if you were to sell your property, so ensure you don’t over or under insure yourself.

Some insurers offer unlimited cover so you don’t have to work out the rebuild costs. However, if you already know what these costs are, it may be cheaper to shop around for a policy that fits your exact needs.

It is important to review your buildings insurance cover amount regularly, as rebuild costs do tend to increase over time. Some insurers offer policies that automatically increase the sum insured, inline with rebuild costs.

Do you need extra cover?

It may be worth considering taking out additional options with your cover to make sure you’re covered for other events such as accidental damage, legal issues, home emergencies and liability cover if a neighbour’s property is also damaged.

How Nest GI can help

All of our building insurance quotes are provided through Defaqto 5 star rated insurers. Defaqto star ratings show the quality of the features and benefits offered by a financial product.

Contact us today to speak to one of our trained advisers and find a policy tailored to you and your property.

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