Last reviewed: June 2026
TL;DR- Buildings insurance is required by virtually all UK mortgage lenders as a condition of the mortgage - it protects the lender's security (the property) against damage.
- The sum insured should reflect the reinstatement cost (cost of rebuilding the property from scratch) rather than the market value.
- Lenders cannot compel borrowers to use their own linked insurance product - borrowers can arrange insurance from any FCA-authorised provider.
- Leasehold flat owners typically need to check that the building's insurance (usually arranged by the freeholder or management company) meets lender requirements.
Why Lenders Require Buildings Insurance
A mortgage is secured against the property - the lender has a legal charge on the property and can recover their loan from the sale proceeds if the borrower defaults. If the property were to be destroyed by fire or flood without insurance, the lender's security would be worthless. Buildings insurance protects the lender's interest by ensuring the property can be reinstated or the outstanding loan repaid from an insurance claim even in the worst-case scenario of complete destruction.
The mortgage offer documents and standard mortgage conditions require buildings insurance to be in place from the date of exchange of contracts (when the buyer becomes legally committed to the purchase) and to remain in force throughout the mortgage term.
What Buildings Insurance Covers
Buildings insurance covers the physical structure of the property against specified risks. Standard covered risks include: fire and explosion; storm and flood; subsidence and heave; escape of water (burst pipes); impact from vehicles or falling trees; vandalism; theft damage to the structure. Contents insurance (covering personal possessions inside the property) is a separate, optional product. A combined buildings and contents policy is commonly offered by insurers.
Buildings insurance does not cover normal wear and tear, gradual deterioration or maintenance costs. It covers sudden and accidental damage from specified insured events.
The Sum Insured: Reinstatement Cost, Not Market Value
The buildings insurance sum insured should be the reinstatement cost - the total cost of rebuilding the property from scratch, including demolition of the remains, professional fees (architect, structural engineer, surveyor) and the cost of construction materials and labour. This is different from the market value of the property, which includes the value of the land (which does not need to be insured) and which fluctuates with the housing market.
Underinsurance - insuring for less than the full reinstatement cost - is a common problem. If the property is underinsured and a claim is made, the insurer applies the "average" principle and pays only the proportion of the claim equivalent to the proportion of the reinstatement cost that is insured. A surveyor can calculate the accurate reinstatement cost; the Building Cost Information Service (BCIS) published by the RICS provides a household rebuilding cost calculator.
Lender Requirements and Panel Insurance
Mortgage lenders typically require the borrower to arrange buildings insurance that meets defined minimum standards: sum insured adequate for reinstatement; the lender's interest noted on the policy; and the policy from an FCA-authorised insurer. Lenders may offer their own linked insurance product or a panel of approved insurers, but they cannot compel borrowers to use these - borrowers have the right to arrange insurance from any FCA-authorised provider. This was confirmed by the Competition and Markets Authority and is reinforced by FCA rules. Lenders may charge an administration fee for noting the interest of an insurance policy not arranged through them.
Frequently Asked Questions
Do I need buildings insurance as a leasehold flat owner?
For most leasehold flats, the freeholder or management company is responsible for arranging buildings insurance for the entire building, with the cost recovered through the service charge. The individual leaseholder does not typically arrange their own buildings insurance. However, lenders require confirmation that adequate buildings insurance is in place for the building. Before purchasing a leasehold flat, the solicitor should confirm the building's insurance arrangements meet the lender's requirements.
Can I be charged by the lender for using my own buildings insurance provider?
Some lenders charge a small fee for "noting interest" on an insurance policy arranged by the borrower rather than through the lender's preferred product. This fee must be disclosed in advance - it cannot be used as a commercial lever to force borrowers to use the lender's product. The FCA's rules prevent lenders from making buildings insurance from a specific provider a condition of the mortgage.
What is subsidence and is it always covered?
Subsidence is the downward movement of the ground beneath a property, which can cause structural damage. It is typically covered by standard buildings insurance policies. Properties in areas with a history of subsidence (clay soils, areas with former mining activity) may face exclusions, higher excesses or higher premiums. A home buyer's survey should identify any subsidence risk before purchase. If a property has a history of subsidence that has been remediated, most insurers accept this - but the premium and terms should be checked carefully.
What happens if I do not have buildings insurance and the property is damaged?
If buildings insurance lapses or was never arranged and the property suffers significant damage, the borrower is liable for the repair costs. If repairs cannot be funded, the lender's security (the property) is compromised and the lender may take action to protect their interest - including potentially arranging insurance themselves and adding the cost to the mortgage, or ultimately taking possession proceedings if the property deteriorates to a state where the security is no longer adequate. Maintaining buildings insurance throughout the mortgage term is both a contractual obligation and an essential financial protection.
