Insurance

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Every lender will require the property to be insured from the day the loan completes, with its interest noted on the policy. Insurance is one of the most common causes of delayed completions, and one of the easiest to avoid.

What cover the lender needs

The lender will require buildings insurance for the full reinstatement cost of the property. This is the cost of rebuilding it, not its market value, and is usually the figure stated in the valuation report. The policy must be in force from completion and kept in place for the full term of the loan.

The cover must also suit how the property is actually used. Standard policies often restrict cover once a property has been empty for a set period, commonly 30 or 60 days, and many do not cover building works. If the property is vacant, under refurbishment, an HMO or commercial, you may need specialist cover, which can take longer to arrange.

What “first loss payee” means

The lender will ask to be named on the policy as first loss payee. If a claim is paid, the insurer pays the lender first, up to the amount owed on the loan, or applies the money to reinstating the property with the lender’s agreement. This protects the lender’s security. Some lenders use different wording, such as “composite insured” or “interested party”, and the lender’s solicitor will confirm exactly what is needed.

How to get it done

As soon as you have agreed terms with a lender, please contact your insurer or insurance broker and:

• give them the lender’s full legal name, registered address and your loan reference;
• ask them to note the lender’s interest on the policy in the form the lender requires; and
• obtain the updated policy schedule and send it to your solicitor and to us.

The lender’s solicitor will not usually release funds until they have seen evidence that the cover is in place and that the lender’s interest has been noted.

If the property is leasehold and the building is insured by the freeholder or managing agent, the lender will need a copy of the block policy. Requests to managing agents can be slow, so please make them early.

Why it is worth acting early

Insurers can take several days to endorse a policy, and specialist cover can take longer. This is often left until the week of completion, when it becomes the last item holding up the loan. Arranging it as soon as terms are agreed removes that risk.

During the loan

Please keep the policy in force and renew it on time. Tell your insurer about any change to the property, such as building works or a change in occupancy, as this can affect your cover.