The cost of building materials increased by 25% on average in the UK last year and continue to rise, which begs the question… how long will rebuilding costs keep on going up?
Recent Government figures have shown that building materials prices went up by as much as a quarter of their 2021 average last year. The latest Building Materials and Components Statistics bulletin also showed an increase of almost 55% since 2015. It should be noted these figures exclude labour costs and professional fees. RebuildCostASSESSMENT.com director Will Molland MCIOB AssocRICS, commented: “Building materials, such as concrete, cement and bricks are continuing to rise in 2023, largely as a result of major increases in energy prices last year. Despite energy prices falling in recent months, we’re not yet seeing this flow through to construction costs. “So, in the very short-term, we expect rebuilding costs to keep going up. However, falling energy prices and slowing demand will certainly have an impact at some point, possibly quite soon. We’ve just seen Citibank boldly predict a dramatic slide in overall inflation in the UK, back down to 2% this year. Only time will tell how accurate this is, but what we can take from all of this right now is an expected slowing down in the rate of increase of rebuilding costs. In the longer term, we may even see a downward readjustment from the market as demand for construction materials falls away.” Huge implications Within the insurance industry, there has been a huge buzz in recent months around underinsurance as a result of rising construction costs. However, as Will pointed out, most property owners were already short on buildings cover ahead of this inflationary surge. “The good news is insurers and brokers have been putting a lot of energy into tackling the issue of buildings underinsurance over this period,” said Will. “Many more property owners now have a far more accurate understanding of how much they should be insuring their buildings for. At RebuildCostASSESSMENT.com we’re now assessing around seven times more properties every month compared to just two years ago. “However, underinsurance is a perennial problem. On average, buildings are still insured for just 66% of what they should be. Our own data shows that the spectre of global inflation has, despite all of our collective efforts, made things even worse, particularly for properties currently insured for around half a million pounds.”
Underinsurance gap widens Will added: “Private homes, many buy-to-let investment properties and small commercial buildings in particular have been affected by higher rebuilding costs, meaning millions are now potentially at risk from underinsurance.
“Our data shows that properties that cost half a million pounds to rebuild are usually only insured for half the amount they should be. So that’s a £250k shortfall. However, we’ve seen this shortfall rise by between £10,000 and £25,000 over a short period of time.”
Overall, the message is clear. There may well be some light at the end of the tunnel around rising costs, but the gap between reinstatement values and what buildings are insured for requires ongoing vigilance and correction if insurance is to offer the protection policyholders need. Connect with Will Molland on Linkedin, here.