Confused - mortgage lender wants buildings insurance 26% over rebuild costs

[KievLoverTwo]

We've been trying to buy a house for years, so I've had 2 mortgage offers by other lenders previously, and I've never seen this on an offer before today.

Agreed price: 342.5k
Mortgage: 90% LTV (it was previously 95% on both houses)
Minimum level of insurance cover: 505k

This is for a Victorian terrace with no special features and it's not listed. It is in a conservation area, but so are all the others I've looked up before.

It came as quite a surprise because I'd been putting various similar Victorian terraces of similar price brackets into insurance quotes for the last few months and they were all coming out with a rebuild value of around 400k. That even included a listed EoT with an asking price of 400k (it's not terribly overvalued imo, but a lot of the value in that one is in the refurb), the rebuild cost quoted was quite small, something like 430k.

We've done the online insurance quote, and they're coming up with 401k as an RICSs value (though, it should be noted, they then mention a range of 258 - 626k!!).

So, any opinions on why the lender wants us to insure the house for 26% over the alleged rebuild costs? Are comparison websites just rubbish at knowing true rebuild costs?

Any views on why I have never seen this on any paperwork by any other lenders before now? Previous offers were Leeds BS in 2022 and Nationwide in 2023, this lender is Virgin Money. They of course say you must insure the property, but neither of them told me for what minimum amount.

I supposed I'm a bit perturbed because insurance only ever goes up every year, and I wasn't expecting the starting point to be over half a million pounds, because I felt like I'd already done my homework!

The policy amounts aren't horrific btw. I suppose I just don't like being wrong about stuff :)

What’s the actual cost of the insurance?? How much difference are you talking about?

Dunno what the difference is.

But that's not really the point.

I just don't like being wrong, haha.

It's only around 300 ish, including 48k of contents and legal. Put the excess at max for both (1k iirc).

Well, I suppose there is some sort of a point, in that it does always go up every year.

You need to go with what the lender says or you won’t get the mortgage…

Some of the quotes have auto populated up to 100k contents and 1m rebuild. Some are quoting the exact amounts I put in. There's only around £15 difference. I'm so confused.

I should probably have left this for a day when I've had more than 3.5 hours sleep. I've only ever had to get contents insurance before. And it shows :)

I figured as much but I'd still like to know why!

Whyyyyyyyy?

The insurance rebuild cost estimated by an actual surveyor who has seen the property is far more accurate than an online price comparison site. You can get insurance that offers unlimited rebuild at no extra costs, so look into that.

At the end of the day, it's not worth being under insured.

It's higher for terraces because if your house burns down, there's 2 houses next door that could be damaged, either by the fire or by the rebuilding.

The cost of building work has and continues to go up so much that I'm not actually surprised that's what they are asking for. The asking price for purchase and rebuild cost are completely separate things. Those streets of houses that get sold for £1 don't only have a rebuild cost of £1. Also keep in mind that any job undertaken for an insurance company usually comes in at the very top of any price range. It will make very little difference to the price of the insurance cover so I really wouldn't worry, as you've already seen some companies have blanket cover of a set amount, others want you to specify the level of cover required. It's much better to be over than under insured.

Thanks all. PP is correct, the lender's valuer viewed the house in person before the offer was sent with the conditional 505k insurance stipulation. One who's familiar with the area. So, I've learned people > algorithms and comparison site valuations.

I've also been reminded that you're far better to over-insure and virtually no extra cost, thank you.