First-time buyer? Don’t forget insurance

Mortgage lending to first-time buyers is at its highest level since 2007. But if you’re among those getting a home loan for the first time, your work isn’t done until you’ve also sorted out your home insurance. We’ve broken down exactly what you need to know.

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How does home insurance work?

Home insurance comes in two parts – buildings and contents. Very simply, if you could pick up your new house and turn it upside down, everything that stayed put – such as the walls, windows, and fitted kitchen – would come under buildings insurance, while everything that fell out – such as your clothes and sofa – would come under contents insurance.

Buildings insurance can be called upon if the structure of your home is damaged – such as in a fire, flood or bad storms. You can claim for your belongings with contents insurance in these events too, as well as if you incur a theft or loss. Terms and conditions such as limits you can claim on one single item vary, so check them carefully.

What’s different now I am a homeowner?

If you have always rented in the past you may have bought contents insurance before, but buildings insurance will almost certainly be new to you. This is because, in rented accommodation, the landlord would be responsible for insuring his or her own bricks and mortar, while you will only be responsible for insuring your own belongings within it.

Now you are a bona fide homeowner however, you’ll need both buildings and contents insurance cover in place. And if, like most people, you need a mortgage to buy your home, getting buildings cover will be a condition of the lender’s agreement anyway. After all, the bank or building society will want to protect their own investment until you’ve paid off your loan.

But even if you bought your first home outright, buildings insurance is a no-brainer.  Flood and storm damage affected 1,300 UK homeowners every day last year, according to the Association of British Insurers (ABI). And government figures show that in 2010/11, fire and rescue
services attended 44,000 fires in dwellings – which is 120 every single day.

Is it true I have to buy buildings insurance from my mortgage lender?

No. Years ago, you had to buy your buildings cover from the lender you were getting your mortgage from, but that’s no longer the case. Our home insurance channel will let you compare home insurance policies.

When should I buy home insurance?

Buildings insurance should be in place at the point you exchange contracts with the seller of the property as this is when you become legally obliged to buy.

Even with contents insurance, you will need to make sure you have your policy in place BEFORE you start moving all your things to the new house, as they could be damaged in transit.

Most contents policies will cover your belongings against damage and if they are lost while in transit, but only if you use a professional removals company. The policy may also state that any delicate or fragile items are packed by the removals firm. Alternatively, the removal firm itself may offer ‘goods in transit’ insurance.

How much should I insure my home for?

When buying buildings cover, you’ll be asked to put a rebuild value figure on your property. This is what it would cost to completely rebuild the house if it was razed to the ground.

But the price you paid for the house and its rebuild value are not the same thing. The main value of a home is in the land – which varies enormously depending on location. The raw materials and labour required to build a house are much more consistent in price wherever you are in the country.

You can get an accurate estimate of your rebuild cost using the Buildings Cost Information Service’s (BICS) free calculator here.

When buying contents insurance, it’s simply a matter of estimating the value of each of your possessions (i.e. the cost of replacing each item) and adding it all up to reach a ‘sum insured’ figure. As a guide, the average value of a household’s contents is just over £40,000, based on MoneySuperMarket data, but we have a tool to take some of the arithmetic out of it for you here.

What does home insurance cost?

Contents insurance will depend mainly on the postcode area of your new home, the previously mentioned sum insured – as well as any extras you choose to add on (such as accidental damage cover). You will also pay less if you have previously built up a number of years where you didn’t claim with a previous insurer – this is known as a no claims discount.

When it comes to buildings insurance, the cost is related to your home’s rebuild value, and whether you live in an area prone to flooding. Again, this is the insurer taking a view on how likely you are to make a claim – and what it will cost it if you do.

There are many ways to lower the cost of home insurance, from taking your contents and buildings insurance with the same insurer, buying online, paying your annual premium upfront rather than in monthly instalments and increasing the level of excess (the first part of the cost of any claim) you’re willing to pay upfront. I explain it all in my article 5 ways to pay less for your home insurance.

What does a good contents/buildings insurance policy look like?

Don’t only look at price however. You will need to make sure you are buying the right level of cover for your needs. The Money Advice Service has a really helpful checklist of what to look for in a home insurance policy. You can find the contents insurance checklist here and the buildings insurance checklist here.

Times are tough enough when buying your first home so make sure you compare quotes for both buildings and contents insurance on our home insurance channel and get the best deal for you and your first new home.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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