When buying a house, most people will rely on a mortgage to help them to buy their dream home. Getting a mortgage and keeping up with repayments will be one of the biggest expenses in life, just as maintaining the house itself will take time, effort, and money.
While it’s not compulsory by law to have certain types of insurance, most mortgage lenders will expect applicants to have several policies set up. This reassures them that your investment – and theirs – will have adequate financial cover if the worst happens.
Like a bank expects legal protection for its assets, you’ll want to protect yourself and your home with the proper insurance policies. So, which types of insurance do you need to buy a house and secure a mortgage? This blog lays out the basics.
The first thing you should be looking for before closing a sale is a building warranty – also known as a structural warranty or latent defects insurance. This should already be in place if you’re buying a new build home from a developer, or a pre-owned property less than 10 years old.
This type of warranty gives you peace of mind that the home you’re buying is completed to a high standard, and that you have a route to follow for reparative action if you discover a problem with the building later on. The builder/developer will be held responsible in the first couple of years, then you can go directly to your warranty provider for claims in the remaining years.
Most building warranties currently last 10 years, with a 2-year defects insurance period covering a wider list of issues, followed by an 8-year structural insurance period limited to latent structural defects cover. However, the minimum period is due to increase from 10 years to 15 years under the Building Safety Act 2022, so newer structural warranties will be a little different.
This warranty will essentially protect you in case of faulty design or workmanship. Not all problems will be noticeable at first, so the length of this warranty allows time for any latent defects to be revealed, ensuring that financial support for repair costs is in place should you end up needing it.
In addition to a building warranty passed from the developer/seller to you as the buyer, you’ll also need to set up your own buildings insurance. Though they might sound like the same thing, they’re not – and your mortgage lender is likely to expect you to have both.
Your structural warranty covers issues relating to the builder’s defective work, and specifically the load-bearing structural elements of the house. So, if there is damage to the home with another source, such as fire, flooding, or theft, you’ll need another policy to cover this.
Your buildings insurance shouldn’t just cover the walls, floors, and roof – it should also include permanent fixtures in the home, such as bathroom and kitchen fittings, and other buildings on the property, like garages or garden sheds.
Repairing your house after anything from break-ins and vandalism to accidental fires and extreme weather can be an expensive endeavour, especially when you’re already going through a difficult and stressful time. With buildings insurance, you won’t be left to foot the bill on your own.
The bricks-and-mortar policy should cover the costs of having to rebuild the property from scratch, so be sure not to undervalue it – but remember that it won’t be as high as the property’s actual market value, so don’t overvalue it, either.
If you’re a leaseholder, the freehold owner may take care of the buildings insurance themselves, arrange the cover but charge you for it, or expect you to arrange and pay for it yourself. You’ll need to discuss this with the freeholder and your solicitor.
Another type of home insurance that is often available in a package with buildings insurance, or separately, is contents insurance. Rather than the building itself, this covers the contents inside it, helping with costs in the event of damage or loss from fire, theft, or extreme weather.
Do you know how much all of your belongings are worth? Everything from your furniture and electrical appliances to your clothes and jewellery could cost thousands of pounds to repair or replace, which is where contents insurance can help to ease the stress of such a disaster.
Your contents insurance policy should cover everything that moves into your new home with you. White goods, artwork for the walls, your living room suite – add up the total value of your belongings to calculate how much cover you’d need if a fire or storm destroyed everything.
Most policies of this type provide ‘new for old’ cover, where you’ll get an equal-value replacement for lost, stolen, or damaged items. However, they’ll also come with an ‘excess’ that you’ll be expected to pay – such as £50-£100 – so claiming for lower-value items may not be worth it.
You may also be able to get more extensive cover in exchange for paying a higher premium. Accidental damage may be a good addition if you’re clumsy or have young children or pets, and you may want to cover portable values outside of the home, too (e.g. phones, laptops, jewellery).
You might wonder what life insurance has to do with your home – isn’t writing a Will more relevant? However, if you pass away without having paid off your mortgage on your house, will the loved ones you leave behind have to take on your debt?
Whether it’s a spouse, child, or another family member inheriting your house and belongings, they’ll need to keep paying all the bills – not just mortgage repayments and insurance premiums. If you pass away before the end of your mortgage term, a life insurance policy could pay out a lump sum that would help your partner or family to cover the expenses.
The amount of cover you’d need depends on the type and size of mortgage you have, as well as the dependants you’d need to leave financial protection for.
- Level term life insurance – pays an amount of your choosing if you pass away during the policy term
- Decreasing term life insurance – the pay-out reduces over time at the same rate as your monthly mortgage balance
Of course, you can also take out straightforward life insurance that isn’t tied to your mortgage, but this is often more expensive. You could also add critical illness cover to such a policy, which would help you to pay your mortgage and bills if you become critically ill and can’t work.
Similarly, you may want to look into income protection cover, which would allow you to keep making mortgage repayments even if you were unable to work due to injury, sickness, or losing your job. Just be sure to check if this is covered by an existing policy before taking out another one.
How much cover do you need?
Every person and every family is different, so it’s best to tailor your insurance policies as much as possible to suit your specific needs. When it comes to home insurance, you should definitely look into specialist policies if you think you’ll need more comprehensive cover.
Insurance is only a backup, but it’s still essential – imagine how much worse things would be in the worst-case scenario of a fire, flood, or robbery if you had to pay to fix everything yourself. Keep your home in good condition and keep up with mortgage and insurance payments and it will ease the burden if something like that should ever happen.
You can make things easier for yourself by making sure the house you buy is good quality from the start, thanks to the assurance of a building warranty. Carry out regular maintenance on your house and keep it secure, and you should be able to keep your costs down over time.