New build house insurance from exchange

AFF8879

Hello, 

This seems like a really obvious question but I wasn’t able to find anything precisely relevant on Google, so apologies if I’m being ignorant.

I reserved on a new build house and am due to exchange contracts at the end of next week. My mortgage offer stipulates that I need to take out insurance from exchange of contracts, which I understand is quite common. However, my house is not due to be completed until October - therefore I’m not entirely sure what policy I need to obtain, I went on Go Compare’s section specifically for new builds and there was no option under build date to put a future date. I put in 2021 given that’s the current estimate, then for example it asked questions such as “is any future structural work due to take place?” - to which I answered yes, even though it appeared the question was geared more towards renovation/extensions etc. 

I ended up with only one possible quote at an extortionate cost - am I missing something? I’ve read documents my developer which said they will insure to completion, so maybe my lender was mistaken?

The house also has standard 10 year NHBC warranty, which the insurance quote process didn’t even ask for which I thought was odd. Any input would be very gratefully received!

Sandtree

The issue is that when you have exchanged you are then committed to buy the property and so if a massive sink hole appears and swallows two thirds of the house between exchange and completion you own a very expensive hole. As a consequence banks require that you insurer it from exchange because if you complete and then do a runner they won't get their money back by repossessing and trying to sell the hole.

The wording on the mortgage is stock and is probably the same no matter what you are buying. 

Most people dont read questions/assumptions on insurance quote forms let alone policy books and so most probably buy regular home insurance on their new build without being aware it isnt valid whilst the construction is ongoing. Insurers won't be interested in NHBC as it covers workmanship issues which the insurance doesn't so they are mutually exclusive. 

I've never bought a new build property so never had to resolve the issue... its probably worth discussing with your conveyancer and/or mortgage broker. It is possible to get insurance that covers major works but as you've discovered its very expensive and won't cover anything done by the builders themselves typically... outside that is construction insurance and that is aimed at the builders themselves.

[Deleted User]

Normally, a new build property will be covered by the builder’s insurance until legal completion so it is unlikely that any policy that you take out will pay out unless the builder goes bust and parts of the house need remediation/completion. That said, what you are being asked for is standard practice when there is a mortgage involved. Many mortgage lenders have links to insurance providers. In the past, the premium offered was at a standard buildings rate. If your lender has no such links, then speak to an insurance broker.

NHBC doesn’t cover everything. For the first 2 years, fixing everything sits with your builder. The NHBC insurance policy then kicks in for major defects from year 3 to year 10.

Smithcom

AFF8879 said:

Hello, 

This seems like a really obvious question but I wasn’t able to find anything precisely relevant on Google, so apologies if I’m being ignorant.

I reserved on a new build house and am due to exchange contracts at the end of next week. My mortgage offer stipulates that I need to take out insurance from exchange of contracts, which I understand is quite common. However, my house is not due to be completed until October - therefore I’m not entirely sure what policy I need to obtain, I went on Go Compare’s section specifically for new builds and there was no option under build date to put a future date. I put in 2021 given that’s the current estimate, then for example it asked questions such as “is any future structural work due to take place?” - to which I answered yes, even though it appeared the question was geared more towards renovation/extensions etc. 

I ended up with only one possible quote at an extortionate cost - am I missing something? I’ve read documents my developer which said they will insure to completion, so maybe my lender was mistaken?

The house also has standard 10 year NHBC warranty, which the insurance quote process didn’t even ask for which I thought was odd. Any input would be very gratefully received!

The mortgagee's request is standard, but it normally doesn't apply to new builds that are still being built.

As a starting place, you should speak with your solicitor, as they will be able to confirm when you are 'on the hook' contractually - from exchange or completion - if something were to happen to the house prior to completion.   Then speak with the mortgage lender if completion is most appropriate to arrange insurance from, so they can amend their requirements.

Hope this helps

SC.

AFF8879

Smithcom said:

AFF8879 said:

Hello, 

This seems like a really obvious question but I wasn’t able to find anything precisely relevant on Google, so apologies if I’m being ignorant.

I reserved on a new build house and am due to exchange contracts at the end of next week. My mortgage offer stipulates that I need to take out insurance from exchange of contracts, which I understand is quite common. However, my house is not due to be completed until October - therefore I’m not entirely sure what policy I need to obtain, I went on Go Compare’s section specifically for new builds and there was no option under build date to put a future date. I put in 2021 given that’s the current estimate, then for example it asked questions such as “is any future structural work due to take place?” - to which I answered yes, even though it appeared the question was geared more towards renovation/extensions etc. 

I ended up with only one possible quote at an extortionate cost - am I missing something? I’ve read documents my developer which said they will insure to completion, so maybe my lender was mistaken?

The house also has standard 10 year NHBC warranty, which the insurance quote process didn’t even ask for which I thought was odd. Any input would be very gratefully received!

The mortgagee's request is standard, but it normally doesn't apply to new builds that are still being built.

As a starting place, you should speak with your solicitor, as they will be able to confirm when you are 'on the hook' contractually - from exchange or completion - if something were to happen to the house prior to completion.   Then speak with the mortgage lender if completion is most appropriate to arrange insurance from, so they can amend their requirements.

Hope this helps

SC.

Very helpful, thanks (as were the other two replies). I received confirmation from my solicitor that I only need to insure from completion and that both the letter from the mortgage lender, and their own “report on mortgage” were incorrect - they’ve now amended the latter.

You do really have to read the fine print on these things…!

isplumm

We had the exactly same issue when we were buying a new build - my mortgage t&cs stated I needed to take out insurance from when we exchanged - but I couldn't find any - once I spoke to my solicitor they told me I didn't need it ... t&cs were wrong!

user1977

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

Smithcom

user1977 said:

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

In respect of this specific case, yes, you are correct

However, normally, after exchange, the purchaser is contractually obliged to purchase the property, or risk losing deposit. 

That's why the mortgagee (lender) require the property to be insured from exchange, not completion. 

This situation differs for new-builds, since the legal mechanism is slightly different, and in any event, it would be problematic for a mortgagor (borrower) to insure for a part-built house.

SC

user1977

Smithcom said:

user1977 said:

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

normally, after exchange, the purchaser is contractually obliged to purchase the property, or risk losing deposit. 

That's why the mortgagee (lender) require the property to be insured from exchange, not completion. 

But the lender isn't a party to the contract, and is not obliged (or likely) to hand over the loan funds if the property is now a smouldering ruin.

Smithcom

user1977 said:

Smithcom said:

user1977 said:

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

normally, after exchange, the purchaser is contractually obliged to purchase the property, or risk losing deposit. 

That's why the mortgagee (lender) require the property to be insured from exchange, not completion. 

But the lender isn't a party to the contract, and is not obliged (or likely) to hand over the loan funds if the property is now a smouldering ruin.

That may be true, but there are many circumstances where they may need to still proceed.   And what about the deposit paid by the borrower?

Are you seriously saying that insurance should only be in place from completion?   (assuming not a new build)

Your perspective explodes around 50 years of conventional wisdom.

Personally, I will work on the basis that insurance should be in place from exchange, which would be the sensible and safest option.

SC

user1977

Smithcom said:

user1977 said:

Smithcom said:

user1977 said:

It would be a pointless condition anyway from the point of view of the lender - they have absolutely no interest in the property at exchange, only from completion. 

normally, after exchange, the purchaser is contractually obliged to purchase the property, or risk losing deposit. 

That's why the mortgagee (lender) require the property to be insured from exchange, not completion. 

But the lender isn't a party to the contract, and is not obliged (or likely) to hand over the loan funds if the property is now a smouldering ruin.

Are you seriously saying that insurance should only be in place from completion?   (assuming not a new build)

Where did I suggest that? I'm saying that the lender is a red herring here - whatever happens between exchange and completion is nothing to do with them. The lender will certainly want insurance to be in place at least from completion - but they'll also expect an intact property.