When considering an equity release plan, you may be concerned about extras that aren't mentioned. One area of concern could be your home insurance. Could you be wondering, does equity release affect my house insurance?
All equity release lenders require that you have buildings insurance in place. The sum insured needs to sufficiently cover loss or damage by fire and all normal risks associated with a residential property. You also need to confirm that you will maintain buildings insurance until the end of the equity release plan.
But requiring buildings insurance is just part of the question. So, let's dive deeper into the effects of equity release on your home insurance.
In this guide, you will learn:
Regardless of the type of equity release, having buildings insurance is mandatory. It is a condition of all lifetime mortgage offers.
With an equity release plan, the lender is providing you with a long term loan, which they are unable to collect on until you no longer live in the property. The natural end of an equity release is when you pass away or move into long term care.
Should your property be destroyed at any time during the equity release, the lender would then lose their collateral for repayment of the loan. Therefore, they will insist on buildings being in place to protect the value of the asset.
Your equity release offer will confirm that you are required to have current buildings insurance in place and for the full duration of your lifetime mortgage.
You are required to provide a copy of your buildings insurance certificate to the equity release lender, for them to confirm that it is suitable. Usually, your equity release solicitors will ask for the copy of your buildings insurance certificate. If you choose to submit an equity release application, we ask for your buildings insurance certificate so we can certify and send onto your equity release solicitors.
Suppose your buildings insurance is due for renewal during your equity release application. In that case, your lender will require proof of renewal before your equity release can complete.
For an equity release, your home insurance will need to meet the following requirements:
- The sum insured will need to cover the reinstatement value (the total cost to rebuild your home) as recommended by the surveyor who values your property. The sum required is listed in your offer document.
- Your insurance is required to cover loss or damage by fire and all normal risks that are associated with a standard residential property.
- The policy will need to be on an index-linked basis to ensure the level of cover is maintained throughout the duration of your lifetime mortgage.
- The lender will require that their interest is registered on the insurance policy document before completion.
- You are required to sign a House Buildings Insurance Declaration with your solicitors before your equity release can complete. This confirms that you will have insurance in place for the duration of the equity release.
You will not have to take out home insurance with your equity release lender. As long as your home insurance meets with the lender's requirements detailed above, you will be able to choose which company provides your home insurance.
Similarly, you will not have to take out your buildings insurance with your equity release advisor.
Let's look at example insurance requirements for a Pure Retirement Lifetime Mortgage which I recommended:
Insurance you must take out through Pure Retirement Limited or Money Release Limited.
None.
Insurance you must take out as a condition of this Lifetime Mortgage but that you do not have to take out through Pure Retirement Limited or Money Release Limited.
We require you to have buildings insurance. We require evidence that this insurance is in place prior to completion and we may request evidence of this remaining in place on an annual basis. The amount of cover required should be at least that of the estimated rebuild cost and this should be index linked (meaning that the amount of cover increases in line with inflation each year).
Have a lifetime mortgage will not result in a direct increase to your home insurance premium or add any risk to your property or home insurance lender.
However, if the level of home insurance you hold isn't enough to cover the value of your home, then you may be asked to increase the level of cover you have. This may, in turn, cause a slight increase to your monthly/annual home insurance premium.
Suppose your buildings insurance meets with the lender's requirements and is for the correct property value. In that case, the only amendment requirement will be to have the lender's interest registered on the insurance document before completion of your equity release application.
If the level of insurance doesn't meet with the property value following the surveyor's valuation, then the lender will require the sum to be increased with your insurance company.
If your property is owned as leasehold (for example a leasehold flat), you will be responsible for obtaining your own contents insurance through an appropriate provider. Your buildings insurance, however, will be arranged by the freeholder and will cover the buildings and maintenance for the complete block, whatever its size.
Your freeholder will usually arrange and purchase the buildings insurance cover. The cost will then be shared across all the leaseholders and repaid as part of the service charge payment.
This tends to be a specialist area of insurance. The companies who look after buildings insurance for freeholders will specifically design the plans to meet the requirements of the freeholder as well as ensuring the flat owners are also suitably protected.
You may already hold a copy of your home insurance schedule, but if not a copy will need to be obtained from your management company. Your solicitor will ask you for a copy to ensure it complies with the lender's requirements in the lifetime mortgage offer.
Your management company will also handle the annual renewal of your buildings insurance schedule each year.
Suppose you are a leasehold owner and also have a share of the freehold. In that case, you may have your own management company set up and be involved with choosing the insurer who provides your buildings insurance.
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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