Landlords are often confused between the rebuild cost and market value of their investment property needed for buy to let insurance.
To help solve the problem, here’s a quick guide to the most frequently asked questions about landlord insurance rebuild costs:
What is the rebuild cost?
The rebuild cost is the insured value of a buy to let or shared house in multiple occupation (HMO) should the property be destroyed and needs demolishing and rebuilding.
Why do landlords need to know the rebuild cost?
Buy to let insurers ask for the rebuild cost on landlord insurance applications and renewals.
If the rebuild cost is too low, an insurance settlement may not pay enough to cover the cost of a rebuild.
If the rebuild cost is set too high, the landlord is paying too much for insurance cover.
What does the rebuild cost cover?
The key difference between the rebuild cost and property value is the rebuild cost does not include the value of the land a property sits on. Even if the property is destroyed, the land is still there and has a value.
Typically rebuild costs cover demolishing what’s left of the old building, clearing the site and erecting a similar building
This cost is less than the property value and does not equate in any way to the council tax banding, which is a common misconception with landlords.
How do I find my rebuild cost?
If you have recently bought a property, the surveyor will have included the rebuild cost in the mortgage valuation.
For landlords who have owned a property for a while, consider these options:
- Try out the official online calculator on the Building Cost Information Service (BCIS) web site run by the Royal Institution of Chartered Surveyors (RICS) and the Association of British Insurers (Link opens in new window)
- Hire a RICS surveyor to work out the figure
Updating your rebuild cost
Review the rebuild cost figure each year – the amount should at least rise by the annual inflation rate.
Some insurer automatically index link the rebuild cost – if you are unsure whether they do, call and find out or you could be over insuring.
Find out the inflation rate by looking up the retail price index (RPI), which takes housing costs in to account and runs at a higher rate than the consumer price index (CPI), which is the government figure for increasing benefits and allowances.
The government takes the September annual inflation figure for increasing benefits and pensions etc.
Both inflation figures are on the Office of National Statistics web site (Link opens in new window)
