One property, several values: which figure does your buildings insurance need?

Property values are back in the news following Andy Burnham’s arrival in Downing Street.

Before becoming Prime Minister, Burnham called for Council Tax reform and questioned why homes in England are still placed into bands using property values from 1991.

News coverage has since explored several possible changes, including updated bands and taxes linked to property or land value. However, at the time of writing, no detailed plan for wider Council Tax reform has been announced.

The discussion gives property owners a useful reminder: the same home can have several different values. A figure that works for Council Tax may not work for your buildings insurance.

Why does one home have several values?

Because each figure answers a different question.

• Council Tax valuation: In England, your current Council Tax band is based on what the property might have sold for on 1 April 1991. It helps decide your tax band. It does not work out how much your home would cost to rebuild. GOV.UK explains how the current bands are assessed.

• Market value: This is the price someone might pay for the property today. It can be affected by the location, the land, local demand and the wider housing market.

• Mortgage valuation: This is usually a limited check for the lender. It helps them decide whether the property offers enough security for the loan. RICS explains that this valuation is produced for the lender. It is not a detailed survey or rebuild cost assessment.

• Rebuild cost: This is the amount needed to rebuild the property if it were destroyed beyond repair. It considers costs such as labour and materials. Your buildings insurance should be based on this figure, rather than the purchase price or current market value.

  
  

These figures might sometimes look similar, but they were worked out for different reasons.

Why does this matter for your buildings insurance?

Some insurers ask you to provide a buildings sum insured. This is the amount of buildings cover shown on your policy, and it should reflect the cost of rebuilding your home.

A home in a sought-after area might sell for far more than it would cost to rebuild because its market value includes the land, location and local demand. A listed or unusual property could face the opposite problem. Specialist materials, features and building methods might make it more expensive to rebuild than its sale value suggests.

Using a market, mortgage or Council Tax figure could therefore leave your buildings sum insured too high or too low.

If it is too low, a claim may not cover the full cost of putting things right. If it is too high, you may be insuring the property for more than it would cost to rebuild.

Sharon Masters, Technical Lead and Surveyor at RebuildCostASSESSMENT.com, says “Property owners can be given several different figures for the same home, so it is easy to see why there is confusion. Each figure has a different job. For buildings insurance, the important question is how much it would cost to rebuild the property.”

Where did your insurance figure come from?

Start with your policy schedule or renewal documents. If they include a buildings sum insured, do you know how that figure was worked out?

It may have come from a professional rebuild cost assessment. However, it could also have been copied from the purchase price, a mortgage valuation or an estate-agent estimate. The same figure may then have been carried forward at each renewal.

If you are unsure, ask your insurer or broker what your policy needs. If the figure came from another type of valuation, it may be worth reviewing whether it still reflects the cost of rebuilding your property.

Whatever happens with Council Tax reform, the practical point is simple: a valuation should be used for the job it was worked out to do.

You can learn more in our guide to market value and rebuild cost. If you need a professional rebuild figure for your buildings insurance, you can order a Desktop Rebuild Cost Assessment online.