Buying a house is an exciting process, but often also a stressful experience. There’s so much to think about that it’s easy to forget something important. One item you want near the top of your To-Do list is building insurance, because without it the purchase of a home could fall through.
While purchasing a home is a time for looking to the future, it can be overwhelming. There is a lot of work to do and a lot of thinking. Sure, a solicitor can help to handle many aspects of the process, such as drawing up contracts and other legalities. However, there are some things you will have to do yourself and getting building insurance for the new home is one of them.
When To Get Building Insurance When Buying a House
Prospective homeowners often ask when the best time is to get building insurance ahead of purchasing a property. Well, it’s best to get your cover arranged in advance of the sale exchange, allowing the policy to come into effect on the exchange date.
Your home insurance policy must be in place before the exchange, which is the point when you make a legal commitment to buy a house. This makes sense because from this moment you take responsibility for the property. Consequently, the seller’s home insurance will no longer be active. Mortgage lenders will often only provide funds for a home purchase if building insurance is in place.
If you don’t get buildings insurance, there is a good chance your mortgage lender will rescind their offer and the purchase will fall through. If this happens, you’re also going to probably break the chain.
A chain is a real estate term that refers to the link between one person purchasing a property, followed by another also needing to buy, and so on. For example, if person A buys a home from person B, person B will need to buy from person C, who will then buy from person D. The chain continues until someone is unable to or does not want to buy.
While you may think you are unlikely to end up in this scenario, only 10% of home sales in the United Kingdom are outside a chain. If your mortgage is denied over a lack of buildings insurance, there’s every chance you will be breaking a chain for other homeowners. Make sure you have cover and avoid problems for you and others in the chain.
Of course, there are also other considerations to make regarding the importance of buildings insurance. Even if it was not compulsory, home insurance (which includes buildings and contents insurance) is something you should consider investing in. By buying cover, you are protecting yourself from the financial risk when loss or damage occurs to your property.
Buildings insurance cover is usually available alongside contents insurance as part of a wider home insurance policy. If the worst happens, your home insurance will cover the costs of repairing and rebuilding your home. Whether you face flooding, fire, damage to home systems like burst pipes, or other risks, buildings insurance is a valuable addition to your home.
Flats have become increasingly common as people look for affordable accommodation in cities, and companies look to maximize the potential of land. Many flats are sold as leasehold and it’s worth noting the situation around buildings insurance for leasehold owners is different to a freehold homeowner.
Perhaps the best place to start is with a clear explanation of the difference between leasehold and freehold:
Freehold: A freeholder will be the owner of the whole property and the land it stands on. For example, the owner of a block of flats.
Leasehold: A leaseholder will not own the land or the whole property but will instead essentially lease one home or flat. Leases are like home ownership because the property can be bought and sold by leaseholders, and agreements can last for decades or even centuries.
In terms of buildings insurance for a leasehold property, it is common for the freeholder to have already taken care of cover. Most freeholders set up buildings insurance to cover the whole property, covering all the flats on the land. In these cases, when you’re buying a leasehold, you do not need to worry about buying buildings insurance.
Importantly, that does not mean you do not pay for cover. Freeholders will typically share the cost of their buildings insurance amongst leaseholders as part of their service charge.
Even if you are entering a leasehold, do not automatically assume the freeholder has set up buildings insurance. While it is common for them to do so, there are no guarantees cover is in place. To avoid confusion and nasty surprises, make sure you check the lease or have your legal representative check. If no insurance is in place, you will need to handle it and buy cover yourself.
Do you have to have buildings insurance with a mortgage?
One of the most interesting aspects of buildings insurance is it is not a legal requirement in the UK. Just like home insurance, which it is often part of, you don’t need to legally have cover on your house. So, does that mean you can ignore building insurance when buying a home?
No, and ignoring buying cover or getting it too late could compromise your property purchase. If you are buying a home with a mortgage, you will probably find home insurance is compulsory. Many mortgage lenders will only approve if you can arrange buildings insurance before the close of the sale.
In other words, while there is no by-law requirement, you will only be able to get a mortgage if you are willing to buy buildings insurance. Some lenders may recommend insurance companies to work with, but you are under no obligation to accept these recommendations. Still, if you find your own insurer, the mortgage lender must first agree before you buy cover from that company.
New builds can be different. Many new builds come with a warranty that can sometimes protect from defects for a period of time, such as two years. Structural issues have protection for up to ten years.
Even in this situation, mortgage lenders will still want you to have buildings insurance, even if it is a new build. The warranty on the home will only provide basic protection and not cover the breadth of scenarios covered by buildings insurance. It’s also worth noting that disputes are common when homeowners try to get developers to honour warranty agreements.
The bottom line is, if you’re looking to borrow towards a mortgage you will need to have buildings insurance.
When should I start shopping for homeowners insurance?
So, you need to have buildings insurance if you are purchasing a house with a mortgage, and you need it before you exchange contracts, but when exactly is the best time to buy? Clearly, you should avoid last minute arrangements. If you leave yourself scrambling around on the last day for an insurance policy, you could end up overpaying, underinsuring yourself, or both.
It’s much easier to remove the stress and set up buildings insurance in advance, so it’s in place for the date of the exchange. Insurance companies are flexible and allow you to choose the date when the policy will start. You will know the date of the exchange, so organise your insurance well in advance for the cover to begin on that date.
Giving yourself a few weeks is a good start because you will have plenty of time to look for the best policies, the best quotes, and to research what level of insurance cover you need. This groundwork is important and will remove any last-minute stresses as your exchange date fast approaches.
In the event you are coming from a property you own; your insurer will probably be able to transfer your cover to the new house. It’s a good idea to contact your provider and explain the details of the new property and arrange for your policy to switch on the day of the exchange. Be prepared for the cost of the policy to change, either becoming more expensive or more affordable. No two homes are equal, and when switching cover your insurer will look at the specific risks of your new home.
Should you shop around for homeowners insurance?
There’s two ways at looking at shopping around to compare insurance quotes. One is as a valuable tool during your research, and the other is as the be-all and end-all of finding cover. It would be unwise to fall into this second category.
Online insurance quote comparison tools are fantastic for highlighting what general price you can expect to pay for the property and contents insurance policy you require. However, these websites are certainly not a guarantee of getting the best deal. Many times, “cheap” results will be shown, but often there are hidden costs you won’t see until you speak directly to the insurer.
That’s why comparison tools should be only a part of your research. It’s always worth remembering two things:
- You are looking for the best cover at the most affordable rate, not the cheapest cover (cheap is not always best).
- Contacting insurers directly can often lead you to more accurate quotes and affordable rates.
It’s also worth remembering, even if you are not getting a mortgage, insurance for a house is important. As a homeowner, having insurance on a house may not be a legal requirement, but it is a sound investment that protects your property against disasters.