With the availability of government incentives to help first-time buyers get onto the property ladder, demand for mortgages is gradually increasing. If you’ve reached out to a mortgage lender, you may have realised that taking out buildings insurance is a requirement, which means spending more.

Is buildings insurance mandatory? Can you get a mortgage without buildings insurance? Here’s what you need to know.

What is buildings insurance?

Buildings insurance generally covers the cost of rebuilding your house, including contractor fees, demolition and site clearance. It may also cover the cost of repairing and replacing permanent structures on your property in the event of damage or loss. These structures may include fences, garages, sheds, drains, pipes and cables.

Can you get a mortgage without buildings insurance?

The simple answer is no. Why? Once you take out a mortgage, the security is usually your property. The mortgage lender will always have a vested interest in the value of your property and anything that could affect it.

For example, if a fire, earthquake or flood destroyed your home and you didn’t have buildings insurance, the lender wouldn’t be able to get back the amount they lent you. That’s why it’s not possible to get a mortgage without building insurance.

The mortgage lender will most likely recommend an insurer, but you can choose one yourself. However, there are instances where you might have to use the lender’s insurance policy if it’s included in the mortgage package.

Additionally, it might be worth noting that if your property is repossessed, you’re responsible for insuring it until it’s sold. Remember to inform your insurer that you’re not living in the house to avoid invalidating the cover.

Is it illegal to not have buildings insurance?

It’s not really about whether it’s legal or illegal, but about the benefit you get from buildings insurance. That said, it isn’t illegal to not have buildings insurance. However, as indicated above, you most likely won’t get a mortgage without buildings insurance.

Once you pay off your mortgage, it’s up to you whether you continue or stop paying for the cover. There are no legal requirements affecting your decision, but it’s advisable to continue making payments. Think about a situation where your house gets damaged or destroyed – how would you afford to rebuild it?

How is buildings insurance calculated?

You can take out building insurance against the cost of rebuilding or the current value were you to sell. The former is the most common and is usually cheaper. But it might be wise to do some research to avoid over- or under-insuring your home.

Though most home insurance companies may work out the rebuild cost on your behalf, it’s prudent to get your buildings sum insured right. Using a home rebuild calculator is one of the easiest ways. You can find one on the ABI (Association of British Insurers) website.

You can also find a surveyor to assess your property, especially if it’s not of standard construction or if it is a listed property.

Keep in mind, though, that rebuilding costs change over time. You may need to regularly review the amount to avoid under-insuring.

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