Understanding Buildings Insurance: What You Need to Know

Whether you’re a first-time buyer or an experienced homeowner, buildings insurance plays a vital role in protecting your property and complying with your mortgage terms. Below, we explore what buildings insurance is, why it’s important, and the risks of not having sufficient cover.

What is Buildings Insurance?

Buildings insurance is designed to protect the structure of your property — including the walls, roof, floors, and windows — against a range of specified risks. If your property is damaged or destroyed by an insured event, your policy should cover the cost of repairs or a full rebuild.

A typical policy provides cover against events such as fire, flooding, or structural damage. Importantly, the sum insured must reflect the full cost of rebuilding the property from scratch, including materials, labour, and professional fees.

Why do Mortgage Lenders Require Buildings Insurance?

Buildings insurance is often a condition of a mortgage because the property serves as security for the loan. Without adequate insurance, a serious event such as a fire or natural disaster could destroy the asset backing the mortgage, leaving both the borrower and lender exposed.

Most valuation reports include an estimated “reinstatement value” — the amount it would cost to rebuild the property, which should guide the sum insured under your policy.

What Risks Should Be Covered?

Mortgage lenders typically expect a buildings insurance policy to include a comprehensive list of insured risks, such as:

• Fire and explosion
• Storm, tempest and flood
• Earthquake
• Subsidence, heave or landslip
• Lightning and impact damage
• Damage caused by aircraft or falling objects
• Riot and civil commotion
• Terrorism and malicious damage
• Escape of water from tanks, pipes or appliances

These risks are intended to ensure protection against both accidental and deliberate damage, as well as natural disasters. However, lender requirements can vary, so it’s essential to check your mortgage terms carefully and ensure your policy includes all required risks.

The Risks of Inadequate or No Cover

Failing to have adequate buildings insurance — or going without it entirely — can lead to significant consequences:

• No Insurance: You could be left to cover the full cost of rebuilding the property, which can run into hundreds of thousands of pounds.
• Underinsurance: If the sum insured is too low, your insurer may only pay out a proportion of the rebuild cost, leaving you with a financial shortfall.
• Incorrect Details: Providing inaccurate information — such as misstating rebuild costs or omitting key risks — can invalidate your policy.
• Breach of Mortgage Terms: If your property is damaged or destroyed and you’re uninsured, you may be in breach of your mortgage agreement.
• Ongoing Repayments: Your mortgage obligations don’t disappear — your lender will still expect repayments, even if the property no longer exists.
• Recovery Action: In the event of non-compliance, the lender may take action to recover their losses. This could include:
  • Repossessing the property (if still standing)
  • Pursuing you or any guarantors for the outstanding debt

Final Thoughts

Buildings insurance is more than just a box-ticking exercise — it is a critical safety net for both homeowners and lenders. Ensuring your policy offers adequate and accurate cover not only protects your home but also keeps you compliant with your mortgage obligations.

If you’re unsure about your buildings insurance requirements or need help reviewing your mortgage terms, our experienced Real Estate Finance team at Lester Aldridge is here to help.